Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

PRIVATE BUSINESS

KING'S COLLEGE LONDON BILL [Lords] (By Order)

Order for Third Reading read.

To be read the Third time on Tuesday 22 July.

LEVER PARK BILL (By Order)

Order for Second Reading read.

To be read a Second time on Tuesday 22 July.

Oral Answers to Questions — SCOTLAND

Local Authority Pay Settlements

Mr. Keith Simpson: To ask the Secretary of State for Scotland what plans he has to meet local authority representatives to discuss the effects of pay settlements in local authorities in Scotland. [6690]

The Parliamentary Under-Secretary of State for Scotland (Mr. Malcolm Chisholm): My right hon. Friend met local authority representatives on Friday 4 July, but pay was not on the agenda. The local authorities know that any increase agreed must be funded from their existing resources.

Mr. Simpson: Will the Minister share his views on how a £4 an hour minimum wage would be funded if the Scottish local authorities and the trade unions agreed to pay such a wage?

Mr. Chisholm: Pay awards are matters for local authorities within their allocated resources. Clearly, the substantial increase announced by my right hon. Friend the Chancellor in the Budget—£89 million for education—will help local authorities considerably next year. Adherence to the best value regime, which we are promoting as a key plank of our policy, will help local authorities greatly.

Mr. Gorrie: Can the Minister assure us that, within the budgetary constraints imposed on councils this year and next year, councils will be able to fulfil their statutory requirements?

Mr. Chisholm: Councils will be able to fulfil their statutory requirements and, because of the Budget, will have extra resources for education. We stand by our election pledge to make education our number one priority.

Mr. Welsh: As local government is one of Scotland's biggest employers, surely Labour's continuing of the Tory

policy of self-financing pay awards must lead to service cuts or higher unemployment. How many jobs will be lost or services cut as a result of this policy?

Mr. Chisholm: We said at the election that we would abide by the public expenditure guidelines that we inherited, for years one and two. We have found substantial additional resources for education, and we are expecting efficiency savings in local government from the best value agenda.

Dr. Fox: Is not the truth that the £4 deal is about Labour councillors buying off the trade unions in case they have to turn to them for support when it comes to running a Scottish Parliament, should one ever be established? Does not this mean that the ambition of Labour's second-raters will be paid for with the jobs and services of the ordinary people of Scotland?

Mr. Chisholm: The simple answer to that is no. The agreement is between local authorities and the trade unions and has nothing to do with the Labour Government. Labour and other authorities know full well that any pay award must be funded from within existing resources.

Scottish Parliament

Mr. Graham: To ask the Secretary of State for Scotland what steps his Department will take to cooperate with local authorities in preparations for a Scottish Parliament. [6691]

The Minister for Home Affairs and Devolution, Scottish Office (Mr. Henry McLeish): The Government are committed both to strong local government and to the establishment of a Scottish Parliament. We are committed to establishing an independent review to consider the relationship between local government and the Scottish Parliament, and we shall be consulting on its terms of reference after we publish the White Paper on our proposals for a Scottish Parliament.

Mr. Graham: Does my hon. Friend remember the absolute fiasco that local government was landed in by the Tory Government, and the fact that a lack of consultation and finance led to a disastrous position? I am absolutely convinced that the measure that the Minister has announced will strike up an accord between local authorities and the Scottish Office to ensure that we have one of the most famous Parliaments ever, set up in Scotland. I look forward to seeing close co-operation between the Scottish Office and local authorities.

Mr. McLeish: Let me assure my hon. Friend that we intend to ensure that co-operation and partnership strengthen democracy in Scotland. Our intention is to strengthen instead of weaken local government. We want to see powers moved from Westminster to Edinburgh, not from the Western Isles, Glasgow and Fife to Edinburgh. We make a firm commitment on that basis. In view of the spirit that the Convention of Scottish Local Authorities has shown, we believe that we can march forward together and ensure better-quality services and a fundamental strengthening of democracy.

Mr. Hogg: When the hon. Gentleman consults local authorities in Scotland, will he please make the point that


devolution proposals will not prove durable unless they are fair to England? Will he go on to make the point that the present proposals are not fair to England and will not be fair to England unless, for example, they are set in the context of a federal scheme for the entirety of the United Kingdom or, as another approach, they provide for a reduction in the number of Scottish Members of Parliament in this House, a reduction in their capacity to intervene in the affairs of other parts of the United Kingdom, and a further reduction in per capita spending in Scotland? Will he suggest to the local authorities that, if the Scottish people were faced with those realities, they might vote against devolution?

Mr. McLeish: Far be it from me to try to curb the enthusiasm of the right hon. and learned Gentleman. What he has just said to the House convinces us that, when he sees the White Paper, he will be able to acknowledge and discuss some of the important issues facing Scotland. We want a fair settlement. Enormous discussions have taken place, but at the end of the day the White Paper will be published and that will be the time for the nation and the House to debate those matters.

Mr. Canavan: May we have an assurance that the contents of the White Paper on the powers of the Scottish Parliament will be influenced more by our men of mettle in the Scottish Office than by our man of Straw in the Home Office?

Mr. McLeish: It is widely known that we in the Scottish Office are, indeed, men of mettle. I assure my hon. Friend that we shall produce a substantial and detailed White Paper which will ensure a fair debate. Scots will soon have the chance to vote in a referendum on their future. The House has taken some decisions already. It will soon have a White Paper to debate. Then we shall move on speedily to the referendum. After we have had an endorsement through a substantial yes, yes vote, we shall come back to the House and introduce a substantive Scotland Bill.

Fishing Industry

Mr. Cash: To ask the Secretary of State for Scotland when he will next attend an EC Fisheries Council to discuss the Scottish fishing industry. [6692]

Mr. Chisholm: My noble Friend, the Minister responsible for agriculture, the environment and fisheries at the Scottish Office will normally attend Fisheries Councils. The next Council is planned for 30 October.

Mr. Cash: Does the Minister accept that the quota hopping agreement reached at the intergovernmental conference has been received with disgust by Scottish fishermen? How many representations has he received in favour of the agreement? Does he accept that the arrangements for a Scottish Parliament—if they ever come about—will mean that the Minister responsible for Scottish fisheries will be able to achieve even less than this wretched Government did in respect of Scottish fisheries at the IGC?

Mr. Chisholm: The hon. Gentleman is wrong on all counts. The agreement at Amsterdam was highly

significant. For the first time, we have a written statement from the Commission, which is guardian of the treaties. It sets out in precise terms the measures that can be taken to establish economic links between vessels and local communities. The new Government established more and achieved more in eight weeks than the hon. Gentleman and his friends achieved in 18 years.

Mr. Godman: May I remind my hon. Friend—if, coming from the old herring port of Leith, he needs such a reminder—that it was a Conservative Government who inflicted the common fisheries policy on our fishing communities throughout the United Kingdom and agreed over-generous concessions to the new member states of Spain and Portugal? The hon. Member for Stone (Mr. Cash) ignores those facts. Will my hon. Friend assure me that he will continue to argue for a severe restriction in industrial fishing, particularly of sand eels at the Wee Bankie and the Buckie Man's Bank?

Mr. Chisholm: I agree that there must be tighter controls of industrial fishing. The Government support the common fisheries policy but, equally, we believe that it must be reformed, and we will pursue that vigorously from within.

Mr. Menzies Campbell: When the Fisheries Minister next visits Brussels, will the Under-Secretary ensure that he has in mind the importance to the Scottish fishing industry of its village-based component, not least in the East Neuk of Fife in my constituency? Will the Fisheries Minister seek to ensure that the common fisheries policy takes account of the problems of the village-based industry, especially as it is suffering from an aging fleet and declining work force? What assurance can the Government give that it remains an important part of the fishing industry in Scotland?

Mr. Chisholm: I shall certainly convey the concerns of the hon. and learned Gentleman to my noble Friend the Fisheries Minister. We have a wide agenda for reform of the CFP, including a greater regional dimension for it. I shall also convey the hon. and learned Member's concerns about Fife.

Mr. Doran: My hon. Friend will be aware that there is a serious problem of black fish in the North sea. Scottish Office inspectors have recently clamped down on the markets in Scotland, but there seems to be no evidence of that happening in English markets, particularly in Grimsby. Will my hon. Friend communicate with his colleagues in the Ministry of Agriculture, Fisheries and Food to ensure that enforcement of all aspects of our fisheries policy is as intense as it is in Scotland?

Mr. Chisholm: I know that my noble Friend the Fisheries Minister has been very concerned about black fish since he took over at the beginning of May. He has promoted his concern in speeches in Scotland. I am sure that he will also convey to the Minister responsible for fishing in England the need to ensure that there is action against black fish in both England and Scotland.

Mr. Bernard Jenkin: Can the Minister confirm that, as a Scottish Fisheries Minister in a United Kingdom Government, he can attend, speak and vote at meetings of


the European Council of Ministers, but that, if fisheries became the responsibility of a Scottish Parliament, he would have to rely on an English Fisheries Minister to speak for Scotland there? How will that put Scotland at the heart of Europe?

Mr. Chisholm: As usual, the hon. Gentleman is wrong on matters of constitutional change. The Scottish Fisheries Minister will play a full part in those matters when the Scottish Parliament is created. I suggest that he reads with great care the White Paper when it comes out next week.

Referendum

Mr. Letwin: To ask the Secretary of State for Scotland what plans he has to make public funds available to groups campaigning in the forthcoming referendum in Scotland. [6693]

Mr. McLeish: The Government made it clear during the debates on the Referendums (Scotland and Wales) Bill that no state aid will be provided to any party or organisation for the purposes of campaigning at the referendum.

Mr. Letwin: I thank the Minister for that reply. Is there an intention to distribute widely in Scotland leaflets describing the White Paper, as has been reported in the press? If so, what arrangements will be made to guarantee their neutrality in the light of what he has just said?

Mr. McLeish: I can reassure the hon. Gentleman that any material published and produced by the Government in relation to the referendum campaign will be totally objective. The Government intend to assist the voters in the referendum, first, through an absent voters campaign targeted at people who will be away from home or unable to attend a polling station on the day of the referendum. Secondly, a detailed White Paper will be published shortly. Thirdly, a summary of the White Paper will be made available to all households in Scotland.

Mrs. Fyfe: Does my hon. Friend agree that we should be grateful to the Scottish Constitutional Convention for preparing the ground for the White Paper with its proposals? Does he also agree that gratitude should be expressed to it for bringing forward proposals to ensure that women of mettle in Scotland play an equal part in that Scottish Parliament when it is formed? It is a disgrace that other parties are not willing to do the same.

Mr. McLeish: I am very pleased to associate myself with the remarks made by my hon. Friend. The Scottish Constitutional Convention has done an excellent job in preparing the way for the Scottish Parliament. It should be applauded for the preparation it has done towards the White Paper and the subsequent Bill. Of course, our White Paper will be based substantially on the document produced by it.
In response to the final part of my hon. Friend's question, we hope that the political parties in Scotland will listen carefully to what she has said today. We want to see a move towards equal representation. Of course, it is up to the political parties to try to achieve that.

Scottish Parliament

Mrs. May: To ask the Secretary of State for Scotland if he will make a statement about his proposals for tax—varying powers for a Scottish Parliament. [6694]

The Secretary of State for Scotland (Mr. Donald Dewar): As stated in the Government's manifesto, Parliament will have defined but limited power to vary revenues. The details will be set out in a White Paper to be published shortly.

Mrs. May: I am grateful to the right hon. Gentleman for confirming that, despite some recent uncertainties, the Government retain their commitment to impose 18 tax rises on the people of Scotland compared with the 17 tax rises announced in the Budget for the rest of the country.
Will he confirm that the summary of the White Paper, which the Minister has just said will be distributed to households in Scotland, will include details of the tax-varying powers? Will it explain why the Government feel that it is necessary to impose that extra tax when the Prime Minister consistently said to the people of the country prior to the election that there would be no tax rises? Will the right hon. Gentleman provide an explanation in that paper about whether the Scottish Parliament will have full tax-varying powers or whether, as the Prime Minister suggested before the election, it will simply be like a parish council?

Mr. Dewar: I congratulate the hon. Lady on her assiduous repetition of propaganda from central office. I commend the White Paper to her when it is published. Perhaps she could start, however, by visiting Scotland and talking to people there. As I am sure she will know if she reads the papers even in a cursory fashion, the polls show an increasingly healthy majority support not just for the concept of a Scottish Parliament but for the need to give it the discipline and responsibility of having powers to vary some of its revenue.

Mr. Dalyell: What is the answer to the question put in yesterday's leading article in The Scotsman as to who pays for the new Parliament building on Victoria quay, which apparently the Secretary of State has discovered he now needs?

Mr. Dewar: The one thing that I have always enjoyed about my hon. Friend is his precision, but I can assure him that on this occasion he has fallen short of his normal high standards. Consideration is being given to various options, the reasons for which I think anyone who knows the Royal high school building will appreciate. We will be looking for a scheme that gives value for money, combined with effective government and an effective working environment for new members of the Scottish Parliament. I think that there will be widespread support for that.

Mr. Wallace: Although the Labour party has suggested that it would not necessarily use any tax powers given to the Scottish Parliament in the first term of that Parliament, can the Secretary of State confirm, having consulted his officials and the Inland Revenue, that those powers will be available for use by that Parliament in its first term if


the Parliament wishes to make the necessary additional investment in education and health that some of us think is needed?

Mr. Dewar: That is the intention. I am grateful to the hon. Gentleman for precisely drawing attention to the difference between an existence of the power and the use of it.

Mr. McAllion: Does my right hon. Friend agree that a directly elected Scottish Parliament will have a democratic legitimacy that cannot be matched even by the Scottish Office? It will therefore be a far more significant player in the annual public spending round than any Whitehall-based Department. It will therefore be better placed to defend levels of public spending in Scotland and to build upon that with its tax-varying power. Will my right hon. Friend therefore join me in recommending all those who want to see better public services in Scotland, which are better funded, to go out at the referendum and vote yes, yes?

Mr. Dewar: I certainly endorse what my hon. Friend says about the need for a good turn-out and to maximise the enormous potential support that exists, as almost every opinion poll has shown. The most recent one showed that eight out of 10 Scots, in the sample polled, felt that a Scottish Parliament directly elected in the way we suggest would produce policies more attuned to the needs of Scotland. There is an essential democratic case at the very heart of our argument for a Scottish Parliament.

Mr. Ancram: The Secretary of State is always keen to remind the House that the tax-varying power means downwards as well as upwards, so can he confirm the statement made in the other place recently by Government Treasury spokesman Lord Haskel—that, if a Scottish Parliament lowered the standard rate of tax by the permitted 3p in the pound, the Treasury would cut the Scottish block by £450 million to make up the lost revenue? On that evidence, can the right hon. Gentleman still claim that the tax-varying power, to reduce or put up tax, is good for the Scottish people? Will they not suffer either way from this half-baked tartan tax idea?

Mr. Dewar: The right hon. Gentleman will want to read the White Paper with care. I congratulate the noble Lord, who seems to have gone some way to educating Opposition Front-Bench spokesmen about the proposals. If we reduce taxation, that will have an obvious impact on the subvention from the United Kingdom Exchequer—it would be extraordinary if it did not. I hate to imagine the assault that would be mounted on us if we proposed otherwise.

White Paper

Mr. Spring: To ask the Secretary of State for Scotland when he expects to publish his White Paper on his proposals for the Scottish Assembly. [6695]

Mr. Dewar: The White Paper will be published on 24 July. This will allow both Houses proper opportunity to debate it before the summer recess.

Mr. Spring: Why has the White Paper been so long in coming? Surely, after all the years of discussion and

debate about devolution, it would have been far better to produce specific proposals immediately after the general election.

Mr. Dewar: That shows a remarkable degree of naivety. For the hon. Gentleman's sake, I am glad that he is on the Opposition Benches; he will have some time in which to learn about the realities of government. If he were truly interested in what we have promised, he would know that we have said definitively, from the beginning, that we would publish a White Paper before the House rose for the summer recess. We have met that promise exactly, just as we shall meet many other promises in the time that lies ahead.

Mr. Hood: Does my right hon. Friend welcome the support of tens of thousands of former Conservatives for the White Paper, even before it is published? Will he comment on the decision of Arthur Bell, a leading Scottish Conservative, who has decided to dump that lot opposite us because they are anti-Scottish, anti-British and anti-Conservative?

Mr. Dewar: I do not want to intrude on private grief by discussing the internal state of the Conservative party. There is, however, substantial polling evidence to show that many Conservative supporters will vote yes in the referendum. That is perhaps not surprising when we recall how attractive the concept of devolution was to many distinguished Conservatives now sitting on the Opposition Front Bench.

Mrs. Ray Michie: If the White Paper includes the option of a new building for the Scottish Parliament, will the Secretary of State consider making it our celebration of the millennium—not a dome or a museum, but a building that reflects the best traditions of Scottish culture and architecture? It should be a living and working building, serving all the people: a truly exciting Scottish experience.

Mr. Dewar: I have a great deal of sympathy for what the hon. Lady says. For one horrible moment I thought that she was about to suggest that the Parliament should be housed on a hill above Oban, where, the House will recall, there is a building that might be turned into a dome with a bit of new roofing. I agree with the hon. Lady; the start of the new Parliament will, we hope—it depends on the vote of the Scottish people—almost coincide with the millennium, and I should very much like to think that it will catch the spirit of the time and will usher in a new era. I want an environment and a building that is worthy of that.

Mr. David Marshall: If the Royal high school building in Edinburgh is no longer suitable for the Scottish Parliament, does that open up the debate about where the Parliament will be located? Does it need to be in Edinburgh? Will the Secretary of State's proposals include consultation with local authorities, especially Glasgow, to ascertain what suitable alternative buildings and sites may be available to house the new Parliament?

Mr. Dewar: I thank my hon. Friend for giving me the chance to make the position clear. The Government have not ruled out the Royal high school, but we are conscious


of its shortcomings as a possible site, and we want to look at other options. To stop many hearts a-fluttering and rumours a-running, I should say that we shall not be looking beyond Edinburgh.

Mr. Ancram: Given that, on his own admission, it has taken the right hon. Gentleman a quarter of a century to bring the proposals to fruition in a White Paper—and it has taken the Labour party 18 years, the convention eight years and the Cabinet three months to bring the White Paper to fruition—does not he think that he is treating the Scottish people with contempt by asking them to make a sensible and valid judgment on the proposals in less than two months? Would it not be right, even now, for him to show some respect for the importance of his White Paper and postpone the referendum until the Scottish people have had a chance properly to consider and understand the highly complex issues, over which, we understand, even the right hon. Gentleman's Cabinet colleagues are falling out among themselves?

Mr. Dewar: I understand why the right hon. Gentleman wants more time to try to invent a few arguments to put to the people in Scotland. I realise that, through no fault of his own but through electoral mischance, he has been removed from the debate for a long time to come. If he is in Scotland more often, as doubtless he will be with his new responsibilities, he will find that, after the lengthy period of discussion, the mood in Scotland is that it is time for action. That will be confirmed by the referendum vote, and I look forward to making progress rapidly thereafter.

Mr. Ernie Ross: Does my right hon. Friend agree that the speed with which he was able to bring forward the White Paper is based wholly on the fact that, for the past eight years, the Labour party has been engaged in detailed discussions, rather than—as it could quite easily have decided to do—telling the people of Scotland what to do? We have been discussing with all the parties that have been prepared to sit down with us in the constitutional convention; even at the last moment, the offer was still open to Conservative members to join us. That discussion has allowed my right hon. Friend to produce the White Paper within such an excellent time scale.

Mr. Dewar: I certainly agree with my hon. Friend that the discussion over recent years laid a valuable foundation on which we were able to build when we came to power in May this year. I do not want to sound complacent, but we have made good progress in getting the White Paper ready for publication within a tight timetable. To be fair to the right hon. Member for Devizes (Mr. Ancram), I am sure that, with his knowledge of government, he will accept that. People have worked hard, and with great skill and commitment, to achieve that end.

Mr. Salmond: As he is talking about recent years, does the Secretary of State recall that he was the co-author and signatory of the Claim of Right, which asserted the sovereign right of the Scottish people to determine the form of government best suited to their needs? Does the right hon. Gentleman recall his Minister of State endorsing, in front of 25,000 people, the democracy declaration that stated that the sovereignty of the Westminster Parliament was no longer acceptable to

Scots? Does the Secretary of State still hold those beliefs and will they be reflected in the White Paper, or has the Home Secretary told him to change his mind?

Mr. Dewar: The hon. Gentleman always puts it so endearingly. Of course I signed the Claim of Right. I was pleased to do so—proud to do so, almost—and I do not regret having done so. The fallacy in what the hon. Gentleman has put to me—we have had this debate before—is that he makes the arrogant assumption that that right of the Scottish people has to be exercised in a specific way. In my view, however, they could exercise that right as they think fit. I feel that they will want to exercise it in favour of the devolution proposals within the United Kingdom that I am advancing. The referendum puts that to the test, and I hope that, afterwards, we can move ahead with the minimum of further delay.

Mr. John D. Taylor: Before the Government finalise the contents of the White Paper, will the Secretary of State ensure that it addresses the issue of Scottish representation in this Parliament?

Mr. Dewar: It is a comprehensive White Paper. I have no intention of revealing its detailed provisions, but I can assure the right hon. Gentleman that it is a well-founded and well-formulated scheme, which I know he will read with great interest.

Environmentally Sensitive Areas

Mr. David Stewart: To ask the Secretary of State for Scotland what plans he has to review his Department's policy on environmentally sensitive areas. [6696]

Mr. Chisholm: Policy reviews for the Breadalbane and Loch Lomond environmentally sensitive areas are due to be undertaken later this year. Reviews of the remaining eight areas are scheduled for 1998.

Mr. Stewart: I thank the Minister for his reply. As he must be aware, environmentally sensitive areas are designed to help farmers and crofters adopt more environmentally friendly farming practices. In his review, will the Minister examine the ceilings for payments, which do not exist in England, with a view to increasing uptake of the scheme and ensuring that farmers and crofters are much more involved in ESAs?

Mr. Chisholm: The ceilings exist to prevent a disproportionate share of resources being swallowed up by a few very large farms or estates. My hon. Friend refers to England, where there is a different farm structure, without the large hill farms that we have in Scotland. The principle of ceilings is supported by the Scottish Crofters Union and was endorsed by the Scottish Affairs Committee in a recent report.

Health Service (Women and Children)

Ms Squire: To ask the Secretary of State for Scotland when he next intends to meet health board chairpersons to discuss health services for women and children. [6697]

The Parliamentary Under-Secretary of State for Scotland (Mr. Sam Galbraith): I meet health board chairmen regularly to discuss a range of issues.

Ms Squire: When he next meets health board chairmen, will my hon. Friend emphasise the importance


of full public consultation on the provision of services for women and children, especially in obstetrics and paediatrics? Will he further agree to urge the new chairman of Fife health board to go out directly to the communities throughout Fife and seek out and listen to their views on how best to provide local maternity services?

Mr. Galbraith: I acknowledge my hon. Friend's interest in maternity services, especially in Fife, and the efforts that she has made on behalf of her constituents. As we all know, maternity services are undergoing significant development and change in the health service. That process will vary depending on each health board. I am convinced, however, that the main motivation for that change must be the health and safety of mothers and babies, and that that will be the motivating factor in Fife as well.

Mr. John M. Taylor: When he meets the chairmen of the health boards, will the Minister tell them whether the Scottish Parliament—if there is to be one—will be competent to determine abortion questions?

Mr. Galbraith: The hon. Gentleman has thought to be clever and introduce an issue relating to the devolution proposals. As my right hon. and hon. Friends have said, he need be patient for only a little longer. The White Paper will be published on 24 July, and he should read it with great interest then.

Public Transport

Mr. Savidge: To ask the Secretary of State for Scotland what plans he has for increasing the use of public transport. [6699]

Mr. Chisholm: I intend to publish a White Paper on an integrated transport policy for Scotland early next year.

Mr. Savidge: I thank the Minister for his reply. Does he agree that the Government's promotion of public transport, combined with the decision that the roads review will pay regard to environmental as well as economic factors, should help us to fulfil our ecological responsibilities? Will he further be prepared to consider, with specific regard to my constituency, whether the western peripheral road, combined with an integrated public transport service, might be an environmentally friendly and economically sound way of solving Aberdeen's traffic problems?

Mr. Chisholm: As I told my hon. Friend in the Scottish Grand Committee, I shall look at the western peripheral road as part of the roads review. The criteria that we shall use for that review are the environment and the economy, but we shall also have regard to considerations of safety and congestion. We shall look at the scope for a modal shift towards public transport, which will be a key theme of our White Paper, and we shall consult on that very soon.

Mr. Ian Bruce: If the democratic will of the Scottish people is that a Scottish Parliament should have tax-raising powers, and if local authorities in Scotland go to that Parliament asking for public transport grants

to help them to get more public transport, will the Labour Government stop that new Parliament from raising additional taxes? Are they asking the people of Scotland to give a democratic view of what should happen and then denying them the ability to use that varying power?

Mr. Chisholm: Once again, Conservative Members try to tempt us to reveal what will be in next week's White Paper. Transport will be dealt with clearly in the White Paper. A debate about congestion charging is going on at UK level among the Department of the Environment, Transport and the Regions, the Scottish Office and local authorities.

Mr. Donohoe: Will my hon. Friend give us some idea about the progress that has been made on the roads review, particularly in connection with the A77? The economy of Ayrshire will be greatly affected if the section that has already been proposed does not go ahead.

Mr. Chisholm: I am aware of the arguments in favour of that section of road, and it will be considered as quickly as possible. It will be early next year before it is completed, because we are determined to have a comprehensive review to introduce a coherent rationale into the road building programme. We inherited from the previous Government a make-believe roads programme; we are determined to form a real roads programme. The previous Government promised roads here and there, but there was no money in the forward budget plans to pay for them. We shall therefore introduce a coherent roads policy, which will be revealed early next year.

Block Grant

Mr. Greenway: To ask the Secretary of State for Scotland what representations he has received on the future of the formula used to calculate the Scottish block grant. [6701]

Mr. Dewar: People express a range of views to me about how public spending in Scotland should be financed.

Mr. Greenway: From what the right hon. Gentleman has told the House this afternoon, can we take it that he intends to build a new Parliament building for Scotland? If so, can we have a categorical assurance now—there is no need to wait for a White Paper—that it will be paid for out of the Scottish block grant, not by taxpayers in England?

Mr. Dewar: The hon. Gentleman wants details but, yes, there will be expenditure on a new Parliament building, whether on the refurbishment of the Royal high school or on a new site. Obviously that is an integral part of our proposals, and I hope that the hon. Gentleman will welcome the new Parliament when it comes.

Health Boards and Trusts

Mr. Russell Brown: To ask the Secretary of State for Scotland when he intends to reduce the number of health boards and trusts in Scotland. [6702]

Mr. Galbraith: I certainly intend to reduce the number of trusts, but I have no master plan. All proposals that are


sensible, involve clinicians, are supported by local health boards, and will improve clinical links between hospitals and between hospitals and primary care, will be considered on their merits. I have no immediate plans to change the number of health boards in Scotland.

Mr. Brown: I thank my hon. Friend for his reply. My constituency and that of the hon. Member for Galloway and Upper Nithsdale (Mr. Morgan) have two trusts and one health board in a sparsely populated area. Is not such a system overburdening in terms of bureaucracy and red tape?

Mr. Galbraith: I do not want to pre-empt any review at this stage, but any review will be put out to wide consultation and the hon. Members who represent that area will be involved. I am therefore grateful to my hon. Friend for putting his proposals to me at this early stage, and I shall certainly take them into consideration.

Mr. Alasdair Morgan: Will the Minister intervene with Dumfries and Galloway health board in connection with the number of community care beds being provided in Stranraer, a matter that is causing great concern in Galloway?

Mr. Galbraith: I was not aware of that problem, but I shall look into it on behalf of the hon. Gentleman and give him a reply when the information is available.

Dental Health

Mr. Maxton: To ask the Secretary of State for Scotland when he intends meeting the British Dental Association to discuss dental health in Scotland. [6703]

Mr. Galbraith: I have asked my officials to arrange a meeting with the British Dental Association in September.

Mr. Maxton: Does my hon. Friend agree with the British Dental Association that the quickest and most effective way dramatically to improve dental health in Scotland, particularly among young people, is to ensure an adequate supply of fluoride in the public water system? If he agrees, will he hold urgent talks with the water authorities to ensure that that happens and, if they refuse to fluoridate water, will he introduce legislation to ensure that it happens?

Mr. Galbraith: There are three main ways to reduce dental caries. The first is to cut sugar intake, the second is to clean teeth regularly and the third—and by far the most effective—is to introduce fluoride, which is the best way forward.

Oral Answers to Questions — HOUSE OF COMMONS

House of Commons Disqualification Act

Dr. Tony Wright: To ask the President of the Council if she will make a statement on the role of the Privy Council in relation to the House of Commons Disqualification Act 1975. [6720]

The President of the Council and Leader of the House of Commons (Mrs. Ann Taylor): The offices and bodies, membership of which disqualifies individuals from being Members of the House of Commons, are listed in the House of Commons Disqualification Act 1975. Amendments to the list are made by Order in Council on the advice of the Privy Council. In addition, the judicial committee of the Privy Council would consider any application that might be made to Her Majesty in Council by a person claiming that a Member of the House of Commons is disqualified by that Act.

Dr. Wright: Did my right hon. Friend notice the recent remarks of Lord Nolan, who suggested that the time had come for the House to look again at the issue of outside interests? Now that certain Conservative Members have expressed their intention of responding to the rigours of opposition by devoting themselves to making serious money outside, is it not time to examine the House of Commons Disqualification Act 1975 and the role of the judicial committee to see whether that is a way of dealing with the matter? Will my right hon. Friend give it urgent consideration?

Mrs. Taylor: I am grateful to my hon. Friend for raising issues that are of concern to many people. We now have a code of conduct for Members of Parliament and the new system that is supervised by the Standards and Privileges Committee. In view of that, it is somewhat early to suggest a different course of action. The Standards and Privileges Committee is working well.

Mr. Ian Bruce: Will the President consider whether the Privy Council might have a role in examining blind trusts for the financing of private offices? I have taken advice from the assistant registrar, who says that a blind trust would no longer be acceptable because when the system was last used it broke down. Perhaps the Privy Council could advise the Prime Minister whether he should publish the names of all the people who donated to his blind trust.

Mrs. Taylor: The matter was considered by the previous Standards and Privileges Committee on the advice of Sir Gordon Downey. The new Standards and Privileges Committee will inherit some of that work and make its recommendations in due course. It is right that the guidance should come from there.

Modernisation

Mr. Hill: To ask the President of the Council if she will make a statement on progress made in respect of the modernisation of Parliament. [6721]

Mrs. Ann Taylor: The Select Committee on Modernisation of the House of Commons was set up on 4 June with a wide remit to consider how the practices and procedures of the House should be modernised. I hope that the Committee will soon be able to report its initial conclusions on improvements to our legislative procedure. We have already made suggestions about changes in the voting Lobby, which are being adopted on an experimental basis.

Mr. Hill: In thanking my right hon. Friend for her reply, may I remind her that impatience for change is


shared not only by newly elected Members, but by Members of all generations, not least my intake of 1992. With reference to long overdue reforms, has my right hon. Friend any plans to remedy the absurd situation that occurred yesterday evening, when the House was kept up until the small hours by a handful of Liberal Democrats on entirely non-controversial legislation?

Mrs. Taylor: My hon. Friend is right to say that the House was detained last night by part, if not all, of the Liberal party. He is certainly correct when he says that not only new Members of Parliament favour change: many experienced Members have submitted ideas and evidence to the Modernisation Committee and we hope to take their views into account in due course. I think that there is a general mood for change the procedures of the House.

Sir Patrick Cormack: Does the right hon. Lady accept that, if her laudable desire for full and proper scrutiny of all legislation is to come to pass, we must have more prior consultation and much fuller debate than she has allowed us today on the Finance Bill?

Mrs. Taylor: The hon. Gentleman will know that today's Finance Bill debate was agreed with the Opposition: the Government acceded to their request to consider the Bill for two days in Committee of the whole House. In the longer term, we must examine procedures to ensure that there is appropriate scrutiny of all Bills. However, I do not wish to rehearse the issues raised in yesterday's guillotine debate.

Order Paper

Mr. Miller: To ask the President of the Council what plans she has to propose changes to the format of the Order Paper. [6722]

Mrs. Ann Taylor: The Select Committee on the Modernisation of the House of Commons is currently considering ways in which the Order Paper might be made more user friendly.

Mr. Miller: My right hon. Friend may have noticed the event being staged outside the Queen Elizabeth II conference centre for Plain English Week. In view of that event and the fact that many hon. Members have great difficulty explaining to our constituents the meaning and structure of the Order Paper, will my right hon. Friend carefully consider revising its format to make it more user friendly? We must avoid the pitfalls that the previous Administration encountered when the Department of National Heritage won the plain English booby prize.

Mrs. Taylor: I certainly hope that a redesigned Order Paper does not win a booby prize. Hon. Members on both sides of the House have expressed concern about the Order Paper's current format. We want to make it more comprehensible, and we think that there is a strong case for applying plain English principles to every document, including the Order Paper. [HON. MEMBERS: "Pictures?"] Opposition Members may need pictures because there are so many new Labour Members. However, we are not considering pictures for the Order Paper.

Mr. Soames: Will the President accept that there is absolutely nothing wrong with the Order Paper and that

she would be better occupied turning her attention to more important matters? For example, will she try to help the Prime Minister recover his bottle so that he may come to this place twice, rather than once, a week?

Mrs. Taylor: Many people inside and outside the House believe that the current procedure for Prime Minister's Question Time is a significant improvement on the old procedure. [Interruption.] If hon. Gentlemen think that it is boring, perhaps that shows that the new procedure is more constructive than the old one. As to the Order Paper, I repeat that we have received representations from hon. Members on both sides of the House about the need for change, which the majority would agree is long overdue.

Messages Between the Houses

Mr. Rhodri Morgan: To ask the President of the Council what proposals she has to replace Norman French with English for the endorsement of Commons Bills being sent to the other place. [6723]

Mrs. Ann Taylor: None.

Mr. Morgan: While we are on the subject of plain English, why do we use Norman French in all communications when sending amended legislation from the House to the other place? Is it not ludicrous that, 550 years after the last speech was made in French in this place, we still do not use English, plain English, modern French or even grammatical old French for those communications? If it is considered indelicate to use the English language when endorsing Bills and returning them to the other place, why do we not use the language of heaven?

Mrs. Taylor: I must take my hon. Friend's word for it that the Norman French that is used is not even grammatical; I would not like to challenge him on that point. There is a role for traditions in the House but we should always ensure that any tradition that we maintain has a purpose. It may be that in due course the Modernisation Committee will be able to turn its mind to these issues, but I do not think that they can be a priority.

Mr. Baldry: Is not the proposal modernisation gone mad? Will the President confirm that the phrase "La Reyne n'avisera pas" was last used in the House during the reign of Queen Anne? Unless someone has a rush of blood to the head, we are unlikely ever to hear it again in our lifetime. If the hon. Member for Cardiff, West (Mr. Morgan) cannot cope with one phrase in Norman French, there is a real problem with the national curriculum in Wales. Perhaps it is about time, with all this modernisation, that we started sending Cromwell's men back to their barracks.

Mrs. Taylor: I am sure that the hon. Gentleman's attitude, approach and comments will be taken into account during the devolution debate.

Mr. Skinner: Would it be fair to record that during the past 18 years a great deal of modernisation took place? Successive Conservative Governments desired its introduction. Most of those who have spoken of


modernisation, apart from new Members, marched into the Lobby to support so-called modernisation of the House. They removed many opportunities for Back-Bench Members by getting rid of debate on the Consolidated Fund Bill. Countless other measures were taken to prevent Back Benchers from speaking. They got rid of Adjournment debates before recesses, of which there were three in any given year.
Those proposals were introduced and finalised in accordance with the Jopling recommendations, which were made in the name of a Tory Member. All that resulted in many of the things that we used to do on the Floor of the House being taken in Committee. I warned Tory Members at the time that they would rue the day that they introduced such changes. I told them that when they went into opposition—they were so arrogant that they believed that they would never return to opposition—they would find their hands and feet tied together.

Madam Speaker: Order. We heard all this yesterday. It is becoming rather tedious.

Mrs. Taylor: My hon. Friend's analysis of the attitude of Conservative Members is entirely right. Of course, the Jopling report did not deal with Norman French.

Scottish Grand Committee

Mr. Rowe: To ask the hon. Member for Roxburgh and Berwickshire, representing the House of Commons Commission, what is the estimated annual cost to public funds of sittings of the Scottish Grand Committee. [6724]

Mr. Archy Kirkwood (on behalf of the House of Commons Commission): Separate estimates for the additional indirect costs of the meetings of the Scottish Grand Committee are not kept independently. A manual check of the records for the financial year 1996–97 for the 13 meetings that were held of the Scottish Grand Committee furth of the Palace of Westminster totalled £108,000, an approximate cost of just under £10,000 per meeting.

Mr. Rowe: I thank the hon. Gentleman for that reply. Does he believe that the cost of the proposed Scottish Parliament will be very much greater? Would he envisage the Scottish Office team of Ministers, which is paid for out of United Kingdom funds, being cut pro rata? Does he think that that would be a good idea?

Mr. Kirkwood: I can confidently give the hon. Gentleman an assurance that the House of Commons Commission has no immediate territorial ambitions to invest in real estate in Edinburgh; we have enough difficulty dealing with estimates to cover the costs of the administration and works budget. These are matters for Ministers of the Crown. The hon. Gentleman is entitled

to make his political point in his own way, but I suspect that the publication of the White Paper next week will provide him with a better opportunity so to do.

Mr. McAllion: Will the hon. Gentleman confirm that the costs of the Scottish Grand Committee during the past Session were inflated because of the decision taken by the then Secretary of State for Scotland to take the Committee on a tour of every constituency in Scotland that had a Tory Member? As every one of them was defeated in the subsequent general election, does the hon. Gentleman agree that there has never been such a waste of public money at any time by any Government?

Mr. Kirkwood: The House of Commons Commissioners are simply servants of the House; we will the means while the House wills the ends. I know that the hon. Gentleman will be aware of a motion of 30 June, which will restrict the number of meetings of the Scottish Grand Committee during the coming Session. It is true that some of us believe that the former Secretary of State for Scotland had an eccentric predilection for compering in important but out-of-the-way parts of Scotland early on Monday mornings late in the winter.

Mr. Forth: Will the hon. Gentleman undertake to install an accounting system that will show the English taxpayer how much of the costs of these exercises he is expected to bear in indulging these Scottish nonsenses?

Mr. Kirkwood: Perhaps I may advert to the fact that Standing Order No. 117 contains powers for a Standing Committee on Regional Affairs. If the hon. Gentleman thinks that he is being left out and treated less well than Scotland, which has access to a Scottish Grand Committee, the Leader of the House might table a motion to constitute such a Committee and the hon. Gentleman could have the same benefits as members of the Scottish Grand Committee.

Committee on Standards and Privileges

Mr. Winnick: To ask the President of the Council what plans she has to review the responsibilities of the Committee on Standards and Privileges. [6725]

Mrs. Ann Taylor: I have no such plans, but I will, of course, consider any views that hon. Members might wish to put to me.

Mr. Winnick: On a relatively minor matter—I would not describe it as anything else—is the Leader of the House aware that I sent a note to the Clerk regarding dress? It would be odd for us to wear the dress of our predecessors of centuries ago, so is not it about time that we brought the Chamber into line and perhaps—without in any way wishing to be offensive to anybody—remove wigs and the rest of it?

Mrs. Taylor: That could be considered by the Modernisation Committee, although not by the Committee on Standards and Privileges.

Points of Order

Mr. Ken Maginnis: On a point of order, Madam Speaker. I should like to draw this matter to your attention. The Secretary of State for Northern Ireland made a statement on Radio Ulster's "Talkback" programme yesterday, which conflicts with specific assurances given to the House on 30 June—I refer specifically to columns 62 and 63 of the Official Report.
Has the Secretary of State indicated to you, Madam Speaker, whether she intends to come to the House to explain why assurances given here on 30 June were either inaccurate or misleading? Furthermore, has she indicated any intention to come to the House to inform hon. Members why policy relating to Government contact with Sinn Fein-IRA, as defined by the Prime Minister after the murder of two RUC officers in Lurgan on 16 June, has been substantially changed, and why contacts are again taking place? If she has not, would you consider it incumbent upon her to do so?

Mr. Douglas Hogg: Further to that point of order, Madam Speaker. Is it not clear from what the hon. Gentleman just said that either the Secretary of State for Northern Ireland was wrong when she made her statement to the House, or there has been a change of policy since she made her statement? In those circumstances, should she not come to the House to make a personal statement to explain a possible error, or explain why there has been a change of policy?

Mr. Kevin McNamara: Further to that point of order, Madam Speaker. Are you not aware that my right hon. Friend the Secretary of State has in fact made a statement explaining the situation; that she is seeking to clarify the Government's position with regard to the talks process; and that all right-thinking people in this country would welcome any steps that are being taken to try to get Sinn Fein-IRA to enter into the peace process and give up the use of violence?

Madam Speaker: This is not a matter for me, but I can tell the hon. Member for Fermanagh and South Tyrone (Mr. Maginnis) that I am not aware that the Secretary of State is seeking to make a statement in the House. I understand that the Secretary of State has already written to the hon. Gentleman on this matter, and that a copy of her letter is in the Library of the House.

Mr. Ian Bruce: On a point of order, Madam Speaker. We heard today, during Scottish questions, that the White Paper on Scottish devolution will be issued on 24 July. I know that you, as guardian of the rights of Back Benchers, will have noted that there will not be another Scottish Question Time before the summer recess.
I am sure that the whole House is concerned that the White Paper will be produced with no assurance that there will be a statement in the House—we have seen again that Ministers do not come to the House to make statements any more, and I am glad that the Leader of the House is in her place—and no absolute assurance that we shall have a

full debate. The people of Scotland will have to vote on the White Paper without their parliamentary representatives having had any chance to comment on it.

Madam Speaker: The hon. Gentleman may seek to catch my eye on Thursday, to ask the Leader of the House whether a debate will follow the publication of the White Paper.

Mr. Hogg: Further to that self-same point of order, Madam Speaker.

Madam Speaker: No. I shall take no further points of order.

Mr. Hogg: Further to that point of order, Madam Speaker.

Madam Speaker: I have answered that point of order. The hon. Member for South Dorset (Mr. Bruce) asked whether a debate would follow the publication of the White Paper—

Mr. Hogg: rose—

Madam Speaker: Order. I am on my feet. It is incumbent upon hon. Members to put such a question to the Leader of the House when she is answering questions about next week's business.

Mr. Hogg: Mine is a related point of order, Madam Speaker, but it is a point of order to you.

Madam Speaker: Order. The right hon. and learned Gentleman obviously does not understand. He has been in government for a long time. Once I have responded to a point of order, I do not take further points of order. That is why I allowed a number of points of order on the first point of order.

Mr. Hogg: I was putting a related point of order, Madam Speaker, which goes to the possibility of a statement. It is clearly the will of the House that we should have an opportunity to explore the White Paper before the full debate. One way to address that point is for an oral statement to accompany the publication of the White Paper. That will give the Government an opportunity to develop their thinking and right hon. and hon. Members an opportunity to explore that thinking.

Madam Speaker: I am sure that those on the Treasury Bench has taken note of the right hon. and learned Gentleman's suggestion.

Mr. Dale Campbell-Savours: On a different point of order, Madam Speaker.

Madam Speaker: Good.

Mr. Campbell-Savours: You will be aware, Madam Speaker, of the annunciator screens around the House. In the old days, one look would reveal the nature of questions, statements or private notice questions, and the time. It now takes 75 seconds to establish from different frames the date, the nature of statements and private


notice questions, the grouping of questions and the time. The screens even refer now to faults on the equipment. Can we revert to the old system whereby the annunciator screen required only one glimpse, thereby saving time?

Madam Speaker: Perhaps we have too much business for the annunciator screen to cope with. I sometimes think so.

BILL PRESENTED

WIDENING OF THE M25 MOTORWAY

Mr. Andrew Mackinlay, supported by Mr. John McDonnell, presented a Bill to make subject to a local planning inquiry any proposal to widen the M25 motorway or to vary the number or width of lanes within its existing curtilage: And the same was read the First time; and ordered to be read a Second time upon Friday 28 November, and to be printed [Bill 48].

Television Licence Payments (Age Exemption)

Mr. Howard Flight: I beg to move,
That leave be given to bring in a Bill to amend the Wireless Telegraphy Act 1949 to exempt persons who have attained the age of 75 from paying the fee for certain wireless telegraphy licences; to make provision with respect to the funding of the BBC; and for connected purposes.
I hope to persuade the Secretary of State for Social Security to make good the finance to the BBC. I appreciate that an hon. Member may not introduce a Bill that involves revenue expenditure, but it is no intent of mine to interfere with the finances of the BBC, which have been put on to a proper footing until 2002.
My motivation is simple. When I was campaigning during the general election, I met large numbers of pensioners aged 75 and older, living virtually entirely on their old-age pensions, for whom the television licence fee was a substantial burden and worry. For them, their televisions were their main conduit of communication, information and entertainment. Little did I know at that stage the history of the House's deliberations and the number of Bills and questions that had been tabled during the past 20 years.
I shall summarise the position, as I believe it to be, which goes back to the 1950s, when the Post Office, as an act of philanthropy, exempted people living in old people's homes from paying the full licence fee. That was put on a statutory basis in 1969, and various regulations between 1984 and 1988 added the disabled and the mentally disordered.
After the Kirklees judgment, the issue of sheltered housing came up, and in 1988 regulations attempted to clarify and deal with sheltered housing. On 1 April 1997, the Wireless Telegraphy (Television Licence Fees) Regulations became effective, which defined accommodation for residential care and confirmed the £5 licence. The regulations provide for a £5 licence for residential homes and for sheltered accommodation that is not in the private sector and where not more than 25 per cent. of the residents may be subject to a right to buy. There is an extraordinary anomaly, in that the Wireless Telegraphy Act 1949 deals with places and not people.
I pay tribute to the hon. Members for Walsall, North (Mr. Winnick) and for Leicester, East (Mr. Vaz) for their efforts over the years in campaigning for a wider licence fee exemption for all pensioners. My objective is an exemption for the older part of that population. There have been 56 representations on concessionary licences since the general election, but the Government are not willing to review the matter: their most recent parliamentary answer was on 2 June.
I want to stress three points. Conservative Members believe that benefits should be targeted. The crucial point is that the older part of the population—those over 75—do not in the main benefit from personal or occupational pensions. A far greater number of pensioners between the ages of 65 and 75 participate in such schemes. The oldest are the most cash-strapped. An increase in the old-age pension, other than an inflationary increase, is extremely unlikely. Means testing is too complicated and too costly for the elderly.
Last year, the cost of such a measure was estimated to be £190 million. Allowing for the increase in the licence fee and the increase in the number of people over 75, the cost is now about £220 million. That is 0.22 per cent. of all social security expenditure, and contrasts with the £628 million cost of exempting all pensioners.
The present arrangements discriminate unfairly. Old people living in a home pay nothing and those in state-run sheltered housing pay £5, whereas people who are encouraged to stay in their own homes under care in the community must pay the full licence fee. It is unrealistic to think that an exemption for all pensioners could be afforded. It should be focused on the oldest part of the community, because people under 75 are generally in receipt of better incomes.
I hope that Labour Members will support me. If the Government have such amounts to spend, it is much better to put the elderly at the top of the list than to make political gestures such as abolishing handguns, which will cost in aggregate £180 million in compensation. Top priority should be given to a simple and tangible measure that is directed, cost-effective and brings help to some 85 per cent. of the retired population who are in real need.

Mr. David Winnick: Do I take it, Madam Speaker, that one can only oppose the measure and not draw attention to the fact that my Bill on 16 January 1987 was destroyed by the Tory Government? In so far as the hon. Gentleman is trying to amend my Bill, I support him.

Madam Speaker: The hon. Member got those comments in while there was still time.

Question put and agreed to.

Bill ordered to be brought in by Mr. Howard Flight, Mr. Graham Brady, Miss Julie Kirkbride, Mr. Christopher Fraser, Mr. David Ruffley, Mr. Oliver Letwin, Mr. David Prior, Mr. Tim Collins, Mrs. Caroline Spelman, Mr. Andrew Lansley, Mrs. Eleanor Laing and Mr. Robert Walter.

TELEVISION LICENCE PAYMENTS (AGE EXEMPTION)

Mr. Howard Flight accordingly presented a Bill to amend the Wireless Telegraphy Act 1949 to exempt persons who have attained the age of 75 from paying the fee for certain wireless telegraphy licences; to make provision with respect to the funding of the BBC; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 28 November, and to be printed [Bill 45].

Mr. Ken Maginnis: On a point of order, Madam Speaker. May I beg your indulgence for a moment? You referred to a letter which you said that the Secretary of State for Northern Ireland had sent me, and informed me that it had been placed in the Library. Having checked, I find that it has indeed been placed in the Library—although it was marked "confidential", and although I believed that it was confidential to me.
The letter does not answer the questions that I put to you earlier. In fact, it endorses the point that I have made. That suggests to me that the Secretary of State should be advised that it is proper for her to come to the House to make a statement on what is obviously a change of policy and practice, contrary to the impression that she and the Prime Minister gave until 30 June.

Madam Speaker: The hon. Gentleman is aware that I have no authority to require a Secretary of State to come here. I understand the argument, but I can only suggest that the hon. Gentleman try in other ways to clear up the matter, and his argument with the Secretary of State.

Orders of the Day — Finance Bill

(Clauses 1, 15, 17 and 19)

Considered in Committee.

[SIR ALAN HASELHURST in the Chair]

Clause 1

CHARGE TO WINDFALL TAX

Question proposed, That the clause stand part of the Bill.

Mr. Peter Lilley: rose—

The Paymaster General (Mr. Geoffrey Robinson): I see that the shadow Chancellor is in some doubt as to whether he or I should speak first. Are you prepared to rule on who should speak first, Sir Alan? Perhaps you could also enlighten us on whether there are any amendments for us to discuss. The Opposition may already have decided that they will not oppose clause 1, or, indeed, the Bill as a whole.
I am at a loss. It is some time since I have served on a Committee of the whole House, but normally amendments are tabled—sometimes, in extremis, starred amendments. It is, in my experience, unique for us to find that there are no amendments for us to discuss. Should I move that the clause stand part of the Bill, Sir Alan, or do you recommend some other procedure?

The Chairman of Ways and Means (Sir Alan Haselhurst): This may be a first occasion for many of us. It is the first occasion on which I have chaired a debate on the Finance Bill, just as it is the first occasion on which the Paymaster General has opened such a debate. I have, however, already put the Question, so the debate will take place on clause stand part.
It is fairly unusual for a Minister almost to solicit amendments to one of his clauses. Having looked to see who had risen, I saw the Paymaster General and did him the courtesy of calling him first.

Mr. Robinson: I am grateful to you, Sir Alan. We can take it, then, that the Opposition could not table an amendment that was in order, but still intend to offer some sort of latter-day attack on the windfall tax.
Clause 1 heads a group of provisions that together introduce the windfall tax, thus meeting the commitment that we made in our election manifesto to introduce a windfall levy on the excess profits of the privatised utilities. Those companies were sold too cheaply, so the taxpayer got a bad deal. Their initial regulation in the period immediately following privatisation was too lax, so the customer got a bad deal.
As a result, the companies were able to make profits that represented an excessive return on the value placed on them at the time of their flotation. We are now putting right the failures of the past by levying a one-off tax. The

yield of around £5.2 billion will fund our welfare-to-work programme, and the new deal that we have announced for the young long-term unemployed and schools.
Clause 1 provides a one-off charge, set at a rate of 23 per cent. It also gives effect to schedule 1, which will be debated in Standing Committee. It may be helpful if I set the clause in context by explaining briefly how the windfall tax works.
Windfall tax is charged on the difference between the value of the company, calculated by reference to the profits made in the initial period after privatisation, and the value placed on the company at the time of privatisation. The value of the company is calculated by multiplying the average annual profit after tax for, normally, the first four financial years after flotation, by a price-to-earnings ratio of nine. That ratio approximates to the lowest average—

Mr. Lilley: Will the Minister give way?

Mr. Robinson: In one second. I shall just finish this point.
If the shadow Chancellor wants to intervene on the ratio, it may be helpful for him to know that the ratio approximates to the lowest average sectoral price-to-earnings ratio of the companies liable to the tax. The value placed on the company at flotation is calculated by multiplying the number of ordinary shares by the price at which shares were offered to financial institutions.

Mr. Lilley: I think that the Minister has kindly answered the question that I was about to ask, which was simply: whence did he pluck the figure nine? On reading Hansard, I shall be able to investigate exactly where he got the figure from.

Mr. Robinson: I am grateful to have so easily assisted the shadow Chancellor. May that ease continue as we proceed into more difficult waters during proceedings on the Bill.
Tax will be charged on that amount at 23 per cent. The tax will be payable in two instalments, due on 1 December 1997 and 1 December 1998. The companies liable to the windfall tax are those that were privatised by flotation and subject to economic regulation. That links with the rationale of the tax; the companies were sold off too cheaply when their shares were offered under value on flotation, and were regulated too loosely in the initial period after privatisation.
We have wasted no time in introducing the legislation and in fulfilling our electoral pledge. I commend the clause to the Committee.

Mr. Lilley: That was hardly a ringing endorsement of clause 1, and I can set the Minister's mind at rest: we have every intention of opposing this and subsequent clauses vigorously, both today and in Standing Committee. We have tabled amendments which, by definition, were in order because they are on the amendment paper. However, you have rightly decided, Sir Alan—all your decisions are right—not to select the amendments and that we can cover this ground under clause stand part, and that is what I intend to do.
Clause 1 introduces the only tax, out of the 17 tax increases imposed by the Budget, which does not breach promises in the Labour party's manifesto. If the House


recalls, Labour promised that it had no need for any taxes over and above the windfall tax; it did tell the nation that there was to be a windfall tax, and it was in the manifesto. However, even that tax was based, essentially, on a deception: the pretence that it would not be paid by ordinary people. It was to be a sort of victimless crime, or rather a fine on the guilty—the so-called fat cats and the speculators—or on some abstract entity, the utility companies.
We have four major criticisms of the clause and the windfall tax that it initiates. First, the clause makes it clear that the tax will not be borne by the so-called fat cats and speculators, criticisms of whom justified its introduction. Secondly, it makes no meaningful attempt to define what is a windfall and should therefore bear the tax. Thirdly, it increases instead of reduces cost to customers; any improved profitability should be passed on to customers in the form of lower prices. Finally, it is retrospective, arbitrary and symptomatic of the Government's belief in arbitrary government, rather than in government by known and predictable rules.
The first issue, therefore, is who will pay the tax in the first instance. I should like the Minister to confirm that next to nothing will be paid by the people whom Labour spent many years vilifying—the so-called fat cats. How much of the tax will be paid by directors of privatised utilities? Next to nothing, I venture to suggest. How much will be paid by the notorious Cedric Brown? Not a penny, I suspect. Nor will it fall upon the so-called speculators, if the definition referred to in the clause is incorporated in the Bill. Virtually no one who subscribed early and sold immediately—who stagged the market—or sold within a brief period afterwards will pay any of this tax. Yet those who bought the shares after flotation, for long-term investment—on behalf, usually, of pensioners—will pay the tax in full; unless, of course, it is passed to their customers.

Mr. George Stevenson: Would the shadow Chancellor care to comment on the obscene procedure that applied when National Grid was given away, when regional electricity companies received windfalls of hundreds of millions of pounds at public expense, without lifting a finger?

Mr. Lilley: My recollection is that that resulted in £50 being knocked off every quarterly electricity bill in the country. The hon. Gentleman may think that that is obscene. We think that that is what privatisation is all about—reducing costs and prices and passing the benefits to consumers.

Mr. Dale Campbell-Savours: May I ask the shadow Chancellor a simple question? Has it dawned on him that one of the reasons why millions of people changed their vote at the election was that they believed that the Conservatives represented and condoned greed? Does not this debate derive in essence from that greed, which the Opposition failed to control when they were in government?

Mr. Lilley: This may surprise the hon. Gentleman, but there is undoubtedly an element of truth in what he says. That is why I have no doubt that he will share my

criticism of his Front-Bench colleagues for erecting a superstructure of criticism on the basis of the alleged greed of the directors of those companies, to justify the imposition of a tax which, according to the Bill, will not fall on those people of whom the hon. Gentleman and my right hon. Friend the Member for Huntingdon (Mr. Major), the former Prime Minister, were critical. The hon. Gentleman has highlighted the very weakness in the clause that I am seeking to highlight.
The clause says:
Every company which, on 2nd July 1997, was benefiting from a windfall from the flotation … shall be charged with a tax … on the amount of that windfall.
The company, of course, is the shareholders at any point in time, but the so-called windfall arose in many cases a decade or more ago. If there was a windfall, it may have been paid out in dividends to the shareholders who held the shares in the intervening period.
How can it be meaningful in the clause to describe shareholders on 2 July 1997 as "benefiting from a windfall", which may have arisen years before and which may have been paid out in dividends to a previous generation of shareholders? Will not the clause be open to legal challenge, as it is internally contradictory? Will the Paymaster General explain why he did not put that benefit in the past rather than the present tense, when clearly the definition in the schedule relates to alleged excess profits arising many years before?
That brings me to my second set of concerns. What do the Government mean by a windfall? No serious attempt is made to define anything that could be meaningfully defined as a windfall. Most people would assume that it referred to the rise in the share price soon after flotation. Previously, informed sources—who appeared to have the ear of the Labour party—made it clear that Labour intended at that time to relate the tax to movements in share prices after flotation.
Why did not the Labour party proceed down that route? Was it because the burden of tax would have fallen more heavily on the companies that were wooing the Labour party at that time? Or was it because that approach would have made it all the more obvious that it was essentially unjust to levy a tax on today's shareholders, which related to gains that accrued to a previous set of shareholders—a tax that would by definition not fall on those who realised those gains before the tax was introduced?
Instead, the Government have come along and defined excess profits arbitrarily. They have taken average profits over four years after flotation. If those profits exceed one ninth of the flotation value, the company will pay windfall tax on the excess. The factor of nine seems to have been plucked from the air. If I heard the Minister correctly, he said that it was related to the lowest price-to-earnings ratio.

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Mr. Geoffrey Robinson: The shadow Chancellor was kind enough to say that I had been clear with him. I apologise if I was not. I think that I was. It is the lowest sectoral price-to-earnings ratio, which was 9.2 for water. We have rounded that down to nine. Is the shadow Chancellor saying that we should take a higher


price-to-earnings ratio in calculating the windfall tax? Many sectors and companies had much higher price-to-earnings ratios in the relevant period.

Mr. Lilley: There are not many companies in Britain with which to make comparisons. Why does the Minister not compare more widely, say, with utility companies floated on the American stock exchange? From my recollection, which is hazy with the passage of time, the price-to earnings ratios of those utilities are more like six than nine. It seems odd to say that anything above the norm is an excess that should be taxed. There is in any marketplace a range around the norm, which reflects the different degrees of success of companies. It is odd not to allow for that fact.

Mr. Robinson: Will the right hon. Gentleman give way?

Mr. Lilley: In a second. While the Minister is about it, perhaps he could tell us why he chose four years after flotation rather than three, five, 10 or two.

Mr. Robinson: Four years broadly corresponds with the first period of price regulation, when regulation was lax. It seemed appropriate to encapsulate the profit that arose in part from the undervalue at sale and in part from the lax regulation in the first period of price regulation.
I fear that I still have not made it clear to the right hon. Gentleman why we have taken the factor of nine. The windfall gain is not that in excess of nine, but that measured between the funds realised by the sale of shares on flotation day and the application of nine—which is the lowest—to the profits. We could not be fairer on any account.

Mr. Lilley: I am not sure that everyone will agree with that. Most people would regard as fairer a number that reflected what was excessive rather than what was just above the normal.
Essentially, the windfall tax boils down to a tax on success. Companies that failed to improve their profitability over the said period will pay much less or even no windfall tax. Some companies are complaining that other companies in the same industry that were conspicuous failures in modernising, improving and increasing their profitability and efficiency will pay little tax, while those that have done most to invest, reform their working practices and diversify into other businesses will pay most.
I understand that companies that have diversified into new ventures, even if outside the regulated activities, will pay windfall tax on the benefits of diversification. I stand open to correction by the Minister if that is not the case. As he does not correct me, I assume that I am correct and that the Government will impose a windfall tax on profits made in areas other than those in which the company was operating at the time of privatisation and other than in directly regulated areas. That is an indication that the Labour party has not changed. The Labour party still believes that profit is a dirty word. The more profits people make, the dirtier they are and the bigger the tax they should have to pay. That is the essence of the proposal before us.
The Government simply do not understand what privatisation was for or how the regulatory system was intended to pass on the benefits to customers. The aim was to harness the profit motive, which was conspicuously lacking under nationalised ownership, to improve efficiency and reduce prices to the customer. Given the monopoly position of many of the industries involved, some regulatory system was essential to ensure that companies did not improve their profits simply by raising their prices.
We could have chosen a system of fixed profit margins. That has been tried in some countries, but it is grossly inefficient because it leads to cost-plus pricing: the more the company's costs increase, the higher its prices. It is automatically allowed to pass costs on by the regulator. We therefore did not choose that method. We could have gone for a rate-of-return system, which is often used in north America and elsewhere, but that, too, leads companies to wasteful, gold-plated investment. They automatically earn a higher return the more they invest, which leads to inefficient use of resources.
We initiated and developed—it has since been copied elsewhere—the so-called RPI minus X system, which requires companies to reduce their prices in real terms by fixing price increases at X points less than the rise in the retail prices index. That requires companies to reduce their prices. If a company cuts its costs even faster than it reduces its prices, it can improve its profits. However, after a fixed period—the Minister gave an average of four years—the RPI minus X system is revised in the light of performance, so that the benefit of past efficiency gains is passed on in lower prices in the next term.
There is a sharper spur for further gains in efficiency, as companies can make higher profits only by exceeding that even more demanding price reduction target. If the Government can convince the House that more than adequate profits are being earned by any of the industries concerned, they or the regulators should require at the next price review bigger reductions in prices, and faster falls in prices thereafter, to ensure that the benefits are passed on to the customer. It is the customer, not the tax man, who should benefit from the efficiency that privatisation has brought.

Lorna Fitzsimons: The shadow Chancellor should be aware that the water regulator, Ian Byatt, has pledged that his current pricing review will mean direct reductions in prices for customers, taking account of the windfall tax, in the next five-year retail prices index calculation.

Mr. Lilley: Exactly. The hon. Lady has hit it on both buttons. First, the regulator will automatically pass on efficiency gains, and, secondly, he will take the windfall tax into account. The reduction will be less than it would have been had it not been for the windfall tax. She has made for me my very next point. Because the Government are imposing an extra cost on these industries, the reduction in prices will not be as great, or will not occur at all.
We should not underestimate how effective privatisation has been in reducing costs to consumers, both domestic and industrial. Since privatisation, telecoms prices have fallen by 40 per cent. in real terms. As a result, calls are cheaper than in France, Germany or Italy. Gas


prices have gone down 20 per cent. for domestic consumers and, for domestic consumers, are below those of Germany, France, Italy, the Netherlands and Belgium. The price of gas for industrial users has fallen by 48 per cent. There has been a reduction of 9 per cent. in the price of electricity for domestic consumers, and one of 10.5 per cent. for businesses. Generators have doubled their productivity since privatisation. That is an indictment of the failures of nationalisation and a recommendation of the success of privatisation since we introduced the policy.
The Government simply pretend that a tax can be levied on companies without any impact on the customers and users of their services. In last year's Budget debate, the then shadow Chancellor said that the windfall tax would not be paid by ordinary families. It is nonsense to pretend that there is any tax that is not ultimately paid by ordinary people. It is not just I who say that, but John Kay, the guru who advises the Chancellor and the Prime Minister. He made it clear in the definitive work on British taxation that there is no tax that is not ultimately paid by individuals.
If the £5 billion that is being levied on those industries by the tax is ultimately fed through to individuals, the average cost per household will be between £250 and £300.

Mr. Campbell-Savours: That is a total exaggeration.

Mr. Lilley: The hon. Gentleman may think that it is an exaggeration when I divide £5.2 billion by 19 million households and get the answer of £270, but that is in accord with the normal laws of arithmetic that have applied in the House for some while.
The Government tried to change the actuarial rules in order to lessen the impact of the advance corporation tax charge on pension funds; now they want to change the ordinary rules of arithmetic, to pretend that a tax on those industries will not affect household bills. It will affect them to the tune of £270 on average, and pensioners will lose most because they spend disproportionately more of their incomes on household bills and typically have lower than average incomes.

Mr. Geraint Davies: On simple arithmetic, does the right hon. Gentleman accept that the £5.2 billion will not simply be put in a hole in a ground or burnt, but will be invested in jobs in our welfare-to-work scheme? Therefore, that money will come back to those same ordinary people through lower tax bills. The right hon. Gentleman's prediction about the future net effect is quite wrong. In the longer term, the whole point of the investment announced in the Budget is that people will pay less in bills and taxes.

Mr. Lilley: All taxes are spent and therefore go back into the economy. On that basis, no tax costs anything and we could have 100 per cent. tax and be no worse off. Most people will see that there is a flaw in that argument somewhere, even if they cannot instantly tell where.
The burden of the tax will fall particularly on pensioner households, who will receive no special protection of the type introduced when the change in VAT rates on fuel

was announced. We shall seek to introduce such protection as the Bill progresses in Committee. Why is no compensation to be offered? If the extra costs imposed on household bills exceed the impact of the 27p a week reduction in VAT on fuel, which the Chancellor will introduce in September, such compensation should be offered.
If the regulators prevent those companies from passing on the cost in higher household bills—the hon. Member for Rochdale (Lorna Fitzsimons) thought that the regulators would do so—by definition, the impact must fall on the value of the shares.
It is worth noting that approaching two thirds of those shares are held by and on behalf of pension funds. Therefore, instead of about 28 per cent. of the burden of the tax falling on pensioners, more than 60 per cent. of it will fall on present and future pensioners. That is in addition to the major, on-going attack on pension funds through the ACT charge which has been introduced in clause 19 and which we will attack with the greatest possible vigour in Committee.
Ultimately, the cost has to fall somewhere, and it will fall disproportionately on pensioners.

Mr. Geoffrey Robinson: As for the share prices and the link to the eventual value of pension funds, surely the right hon. Gentleman will be pleased to know that, as at 11 o'clock this morning, the average of those shares was up by 7 per cent. compared with the FTSE average of just 4 per cent. since 1 July this year.

Mr. Lilley: It will not have escaped the hon. Gentleman's notice that the share markets in this country and in some other countries have been rising fairly rapidly and continuously for some time. That is almost certainly not the effect of imposing a tax on them. If he thinks that shares go up when one imposes a tax on them, one ends up with the absurd justification that the Government offer for almost everything—that taxing things is good for us. If the Minister really believes that the shares have risen because a tax has been imposed on the pension funds in question, he will believe almost anything.
We are against this tax because it is retrospective, and over a long period, too. The Institute for Fiscal Studies compared the tax with the tax on banks in 1981, to the great advantage of the latter; it was almost immediate, and it fell on profits that had been made just months before, not on profits made years before. The new alleged windfall profit, moreover, was identified only years after the event.
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It is particularly strange that the Government should justify the tax as having been expected by everyone. The Labour party was invited to contribute to the Railtrack prospectus not long ago. I can find four pages in that 600-page document which were contributed by the Labour party and which describe its policies as they affect Railtrack. There is not a whisper about the possible imposition of a windfall tax on Railtrack. I should like the Minister to confirm that Railtrack will indeed fall within the general purview of the tax. The Bill certainly mentions railway companies, so we may legitimately assume that Railtrack will be included.
The Paymaster General has been a business man in the past. He must know that it is a serious matter to sign off a prospectus that is not a full and complete statement of the facts known to people at the time. Is he saying that, when Labour submitted its contribution to the prospectus, it did not know that it intended to introduce a windfall tax; in which case how could the market, the investors in these companies, or the rest of us, be supposed to know? Or did Labour keep it a secret, in defiance of company law? Who signed off the submission to the prospectus? Perhaps the Minister will tell us, so that we shall know whom to hold to account if ever legal proceedings are taken against the Government for the deceit inherent in the process.

Mr. David Watts: When the previous Administration sold off the utilities, they undervalued them. Does the right hon. Gentleman agree that that was gross incompetence on the part of the Conservative Government, and that it justifies this tax? If there were any justice in the world, the Conservative Ministers involved would be facing a surcharge for losing such large amounts of taxpayers' money.

Mr. Lilley: The difficulty that arises when selling off formerly nationalised industries is that it is hard to tell how successful they will be under privatised management compared with the appalling failures of nationalisation. If the Labour Government were proposing to levy an excess tax that related the price at sale to the profits in the four years before flotation, that might be reasonable. If they did so, they would have to hand back money to quite a few shareholders. But the profits made afterwards were unforeseen and unforeseeable; as it turned out, only the most bullish advocates of privatisation were right about them. It is a tribute to privatisation that it produced the improved profitability which, at the end of the price period, is then passed on to customers in the form of lower prices—if they are not siphoned off by extra taxation.

Mr. Campbell-Savours: Is it not true that anyone who put his money into Railtrack doubled it in 12 months? Is that right? Does the right hon. Gentleman agree that there is a case for taxing some of it?

Mr. Lilley: Capital gains tax is usually levied on gains that are realised. If it was so obvious that any windfall should be taxed, when invited to state its policies in the prospectus, why did not the Labour party think it worth telling the public about this great truth which the hon. Gentleman holds to be self-evident?

Mr. Campbell-Savours: I bet some Tory Members doubled their money, too.

Mr. Lilley: I assure the hon. Gentleman that I did not. As Ministers, we were never allowed to participate in the privatisation of those companies—or to hold millions of pounds' worth of shares in them, I might add.
During debates on clause 1 and subsequent clauses relating to the windfall tax, we shall want to focus on the Government's failure to understand how privatisation works. We shall want to concentrate on their failure to pass on the benefits of that privatisation in lower charges to customers and their desire to increase charges to customers and families by imposing the tax. We shall

want to focus on the need for protection from that higher cost, just as we protected pensioners and others from other cost increases that were affecting their household bills. We shall want to focus on the importance of preventing the tax from becoming a permanent and continuing levy.
The Paymaster General justified the tax as a means of financing the welfare-to-work programme. We are not here to debate the merits of that programme. I previously said that I wish it well, but I doubt whether it will be successful. One thing we know from experience of such programmes around the world is that they continue to cost money for as long as they exist. How can the Government justify the existence of a temporary tax by a permanent programme that will need permanent taxation to finance it? Can the Government give an assurance to the House that the tax will not become a permanent burden on household bills?

Liz Blackman: During last week's oral questions, in an almost throwaway remark, the shadow Chancellor said that the programme was temporary. Does he not concede that good-quality skills and employability are transportable? Behind employability lies behaviour that many young people in this country have not learnt, such as getting up early in the morning, getting themselves to work on time, following the rules once they are there, supporting their colleagues and generally taking on responsibility that they have not had to bear in the past. Does not the right hon. Gentleman concede that such behaviour has an air of permanence about it?

Mr. Lilley: I was saying that it is a permanent programme, but the tax is allegedly temporary. According to the hon. Lady's analysis, as each cohort of young people comes through, there will be a permanent need to fund the programme. We are not here to dispute the arguments that she has advanced—for the sake of argument, I shall accept them—but according to her analysis, the tax will have to be permanent.
We want an assurance from the Government that this will not be a permanent levy on the gas, electricity, water and telephone bills of every person in the country, particularly pensioners. I shall be urging my right hon. and hon. Friends to oppose the clause.

Mr. Malcolm Bruce: I, too, wish to probe and oppose the clause. Although many of the arguments have been rehearsed and the Government have a mandate to implement the tax—we all know that the measure will be voted through with a comfortable majority—it is important that genuine concerns are put on the record and that the measure is tested against practical experience.
Those of us who oppose the windfall tax readily acknowledge that the first problem is that it is superficially popular. It appears to have no victims; the money will be spent on many good causes; many people made a lot of money, so why should there not be some consequences? However, there are good examples to show that that is a superficial argument. The tax is superficially attractive, but it is basically dishonest.
It is dishonest, first, because it is a retrospective tax. Most of the people who made the excess profits have pocketed them and gone; they will not be paying the tax. If the Labour party had been as concerned about the matter as it claimed, it might have done something about


the tax rates of high earners, such as those earning more than £100,000 a year. It would then have ensured that some of the people earning that sort of money made a slightly greater contribution to the general welfare. But that is not the central thrust of the debate on the clause.
I suspect that most people will think, "This is fine; I do not have to pay the tax and I shall receive benefits from it in training, employment and so on for my children or for me." The welfare-to-work programme is not part of this debate; whether we support it is a separate issue. We have expressed support for many of the Government's proposals, which we accept have some good features, and we have come up with some alternative proposals.
However, the way in which one spends the proceeds of a tax is separate from the merits of the tax; spending the proceeds of a tax on good causes does not in itself turn it into a good tax if its impact is fundamentally wrong. As has been said, it is not a victimless tax and it is not a tax that ordinary people will not pay; over time, they will pay it in one way or another.
The shadow Chancellor was right to say, in response to an intervention, that if, in calculating the price formula for a utility, a regulator takes into account the impact of the windfall tax, the regulator will basically be determining what prices should be after a significant amount of money has been taken out of the company's budget.
That proves a basic point—billions of pounds cannot be taken out of the utilities and have no impact on the basic economics of those organisations. If they do not have that money, they cannot invest it. If their investment programme is to be maintained without that money, they must borrow more than they would otherwise have borrowed. If they are forced to borrow, they have to pay a return on the money.
As was also said, consequently prices are likely to be higher than they would have been. If that happens against a background of falling prices, it may not be detected and the Government may eventually get away scot free, inasmuch as people will not appreciate that they have paid for the tax, but they will have paid for it just the same.

Mr. Denis MacShane: May I report to the hon. Gentleman a conversation which I had nearly two years ago with, I think, the managing director of Yorkshire Electricity? The managing director said to me, "Please pass on the thanks of our finance director to Gordon Brown, because never has a tax been so flagged up and so much notice given to enable us to make appropriate arrangements." Hon. Members are expressing synthetic indignation about the mistaken idea that the tax is a surprise and that companies have not prepared for it, discounted it and accommodated themselves for it.

Mr. Bruce: I am grateful for that intervention, but it is beside the point. The tax may well have been well advertised and management may well have been able to make contingencies. Many of those fat cats may well have been delighted that there was hype about a tax that people thought would hit them, when in fact they were pocketing the money and salting it away in overseas accounts. On that basis, yes, they had plenty of notice to ensure that they did not pay a penny of what many people considered to be their ill-gotten gains.
The people who will ultimately pay are shareholders and consumers, because the regulator will take into account the arrangements that companies have made. People may not notice that they have had to pay the tax, but they will have paid it in the end.
The clause is open to interpretation, because it reads:
Every company which, on 2nd July 1997, was benefitting from a windfall".
Who decides, and how, that a company is benefiting on 2 July 1997? In fact, the formula does not refer to 2 July 1997; it goes back to the first four years post-privatisation.
Therein, I suggest, lies an inherent contradiction in the Bill. No doubt the Minister will respond on that point at the end of this short debate. On the basis of the wording, it seems that it would be perfectly possible for a company to say, "We may have done very well in the first four years, but circumstances have changed beyond recognition and we are no longer benefiting, so we should not be liable to the tax."
On Second Reading, my hon. Friend the Member for Twickenham (Dr. Cable) made the pertinent point that several companies behaved in a fairly profligate manner soon after they were privatised. They sought to diversify out of their original functions and became involved in relatively expensive and not especially profitable ventures, on which they lost money. They could write such money off, and therefore not make windfall gains of the size that would otherwise have been made, so they will pay less substantial taxes than other companies that prudently concentrated on their core business and on building up their strength there. Companies that did not waste the money will pay more tax, which seems to be a penalty for prudence and well-directed strategy. In a sense, it rewards those who have taken more risks.
I have said for a long while that I am concerned about certain aspects of the post-privatisation environment. The Liberal Democrat party argued not against the principle of privatisation but against the way in which it was done. We said that there was a need to ensure both effective regulation and effective competition in the post-privatisation phase. The Labour party criticised the previous Government for selling the family silver at knockdown prices. I accept the shadow Chancellor's comment that it is difficult to determine the value of a privatised asset, and it would have been extremely embarrassing if the flotations had been set at a level that discouraged full take-up. Almost by definition, therefore, the Government were driven to float those companies below their value to provide an incentive for people to invest in them and make the whole exercise appear more attractive.
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Some people may say that it is typical of a Liberal Democrat to comment that those are the opposite sides of the Labour and Conservative coins: the Tories privatise at a discount to give people a windfall, which the Labour party then taxes to put the money back into schemes that meet its set of priorities. It is money moving around the same group of organisations, but there are more open and honest ways to raise money and fund programmes. The methods of doing so should be sustainable and understood.
The assurance which we all need is that this will not be the beginning of a continuing process. The Government have argued that they did not invent the windfall tax idea


but that it was created by the Conservatives when they imposed a windfall tax on the banks. Two wrongs do not make a right, although it is arguable that the windfall tax on the banks was at least applied at the time the windfall was made, rather than a considerable time afterwards. However, the principle is just as wrong.
A range of privatised companies are now subjected to a windfall tax and continue to be subjected to regulation. The question then arises: at what point will it be determined that those companies are finally free of their history and able to operate in the marketplace, making their own commercial decisions within a realistic framework? Even at arm's length, regulation empowers the Government to influence those companies' policies substantially. I suspect that many of them will take the view that they would rather pay a windfall tax than have excessive regulation, which might interfere with the day-to-day management of their organisation.
It is interesting to note that the regulators' attitudes vary considerably. Regulation is a specific feature of the definition of a company liable to the windfall tax. I therefore distinguish between, for example, the electricity regulator and the gas regulator.
I remember an exchange that I had in the Trade and Industry Select Committee with Professor Littlechild—I am glad to say that his attitude changed a little afterwards—when he said that his job was to tell us what went wrong afterwards, not to interfere at the time, which was not why most of us thought he was appointed as regulator.
The current Director General of Gas Supply, on the other hand, said that she did not believe that it was the regulator's job to intervene to encourage gas companies to promote energy efficiency, despite all the agencies involved agreeing that it should be an effective part of the regulatory process. Because she has refused to intervene, that process has not happened.
I mention that to show that the impact of regulation on companies can differ substantially. As the Minister pointed out in interventions, regulation can modify abuses of both pricing and investment policy. There is potential for great argument about which company has been most affected by the impact of the regulator, and whether the assessment of the tax liability should be varied according to the degree of regulation and the conduct of the particular regulator.
I wonder whether the Government have given the companies any private assurances—if so, those should be made public—that, if they come quietly, there will be no further repercussions and in future there will be a reasonable climate for them to operate in. Management cannot be relaxed about the proposal unless assurances have been given that the tax will not be imposed again and that in future the companies will not be subjected to heavy-handed regulation, which could seriously affect their profitability.
Aspects of the tax are profoundly wrong in principle. It will ultimately fall on ordinary consumers, pensioners and shareholders to meet the cost, whether they are aware of it or not. The tax has implications for the continuing relationship between Government and the utilities. Some might argue that it could be a lever for a form of back-door nationalisation. It sets a precedent which would be extremely alarming if it were used by the Government to justify intervening in other sectors of the economy where they deemed that windfall earnings had accrued.
That is where the tax is most fundamentally wrong in principle. It is an irony that a new Labour Government have at the core of their manifesto commitment a very old Labour concept, which could set a bad precedent. I am grateful that Ministers have said that the tax is a one-off and will not be repeated. We will certainly hold them to that, because the precedent is wrong and should not be followed in future.

Mr. Campbell-Savours: I had not intended to speak in the debate until about 10 minutes ago, when I noticed that there was a shortage of speakers. I intervene briefly to raise one or two points which, when I recollect what has happened over the years, may be significant.
I have never purchased—

Mr. Quentin Davies: Will the hon. Gentleman give way?

Mr. Campbell-Savours: No, I have not even started yet. Give me a chance.
I have never, at any stage of my life, purchased the stock of a privatised company, nor has any member of my immediate family. I have not done so—

Mr. Davies: On a point of order, Sir Alan. I must intervene, or the Hansard record of our proceedings might be falsified. The hon. Member for Workington (Mr. Campbell-Savours) said that he was rising to speak only because he had noticed that there was a shortage of speakers. Those outside the Chamber would be justified in concluding from that that no other hon. Member had indicated to you that he or she wished to speak, or had tried to catch your eye. At my own count, five or six hon. Members on both sides rose on the last occasion when Members could have been called.

The Chairman: I am sure that the hon. Gentleman is trying to be helpful, but I have a pair of eyes in my head that are not so far failing that I am unaware of the situation.

Mr. Campbell-Savours: Following the landslide victory, there are 160-odd Conservative Members of Parliament, but only four or five of them have bothered to turn up to oppose a Bill that they have been telling us for weeks will do great damage to the former public utilities and to the privatised companies. Obviously, they do not feel strongly about those matters.
I was saying that I had never purchased a share in a privatised company. I have not done so on principle, because I believe that what happened in the 1980s and the early 1990s was fundamentally wrong.
As a member of the Public Accounts Committee, I saw several reports produced by the National Audit Office at that time that questioned the arrangements for the sale and flotation of shares. The Public Accounts Committee discussed those matters regularly, and—without breaching the confidentiality of the Committee—I must admit that the handling of those arrangements created divisions. I believe that we gave away large public utilities in the 1980s, and many greedy shareholders queued to purchase shares in the knowledge that they would make substantial windfall gains.
I draw attention to an article that appeared in one of the more sensible press publications last year. It referred to a conversation about the windfall tax that allegedly took place in the former Conservative Cabinet. If I remember correctly—the article seemed very well informed—Cabinet members argued in favour of a windfall tax. Even the former Chancellor of the Exchequer allegedly expressed the view that a one-off dollop—if I may use that word—of cash from the privatised companies could help the then Government to secure their public expenditure targets. I shall say no more about that matter—perhaps the Opposition spokesman, the right hon. Member for Hitchin and Harpenden (Mr. Lilley), will refer to it during the debate.
I welcome the windfall tax. I think that it is a brilliant idea, and I congratulate those who were responsible for dreaming it up. I congratulate the researchers, academics and whoever else enunciated the principle that we are now transforming into legislation.
I believe that it will have a major impact in my constituency. Many of my constituents aged 18 to 25 or 25 years and over are long-term unemployed people, and their condition worries me. Many of them have grown up in families with no one in work. Lack of employment opportunities is creating a culture of unemployment in some parts of the country. Unless we tackle the problems today, that culture will undermine the social fabric of our society and have all sorts of social and economic consequences. The Government are trying to address those issues through this very important tax and the Finance Bill.
If all we do in the next few years is give young people hope, involve them in economic activity, give them a purpose in life and restore their faith—or induce some faith—in society by showing them that we are interested in their future, we will succeed. Through the gateway concept, as outlined in the new deal proposals, we hope to give young people education and employment opportunities that will stand them in good stead for the rest of their lives. We may not be thanked for our achievements, but that does not matter. We must take a decision today that will enable many hundreds of thousands of young people to enjoy the experience of stable work—which is a common experience for most people in my age group.
I turn now to the legislation and to the reasons why it is important. I readily confess that I have been converted to the principles of privatisation, which I opposed in the late 1970s and early 1980s. I voted in Divisions against privatisations—I am quite open about that; it is on the public record—in most areas, although I was discreetly in favour of selling council houses because I envisaged great social benefits.
In the same way, many Tories have been converted to the idea of the national health service. They voted against our proposals in the mid-1940s, believing that private health was the only solution. Today, many Conservative Members believe in the national health service. They may do things to which we object—a core of Tories would like to privatise the whole process—but the Conservatives were converts just like us.
Once converted, we were forced to address the question of how to achieve the objectives delivered by nationalisation through the privatisation process, so we

became regulators. I think that the Labour debate in the next few years will be about the extent to which we can advance arguments about regulation without interfering in the workings of the market. We must strike a balance—and I believe that the previous Government got it wrong.
We have become greater regulators, and we are seeking to develop the principles of privatisation—we shall probably be more successful than the Tories ever dreamed. However, a residual issue remains: although we recognise that the changes will ultimately be beneficial, we must address the fact that many hundreds of thousands, if not millions, of people made huge windfall gains when they purchased shares in the privatised utilities. We should remember that many of those people still hold those shares today—as the former Government reminded us repeatedly when they published their figures on the state of share ownership in the United Kingdom.

Mr. Quentin Davies: I must correct the hon. Gentleman's perception of history. The national health service was suggested to the House in a White Paper that was produced by the coalition Government in 1944 and presented by a Conservative Minister of Health. The Conservative party supported the principle of the national health service from the outset. The only difference between the parties during debate on the 1948 legislation was whether hospitals should be nationalised or should remain independent, often charitable, foundations. The principle of free health care at the point of use was common to the major parties—including the Liberals—and, as such, it was enshrined in the 1944 White Paper.
I hope that the hon. Gentleman does not mind my correcting that point. It is not directly germane to this debate, but, as the hon. Gentleman raised it, it is important to ensure that an untruth does not gain credibility by being repeated without challenge in this place.

Mr. Campbell-Savours: I do not intend to withdraw my remarks. The hon. Gentleman is rewriting history. When I came to this place in 1979, I met some very interesting old characters who had been Members of Parliament since 1945. We would sit in the Dining Room at night and they would tell us fascinating stories about parliamentary events in the 1940s. Their tales about Conservative Members' resistance to the socialisation of medicine in the 1940s were legion. They were very interesting stories, but I shall speak privately to the hon. Gentleman about them.
A residual issue remains: the huge gains made by many greedy people. We cannot turn back the clock and eliminate those gains. However, we can at least seek to redress the problems that have arisen as a result of the lost revenue that would have accrued to the taxpayers if the industries had remained publicly owned and begun to operate efficiently and effectively.

Mr. John Townend: I listened with interest to the hon. Member for Workington (Mr. Campbell-Savours). The hon. Gentleman and others have the idea that those who invest in shares and make profits are greedy. They think that they should not receive profits and believe that they do not pay tax. Those who take that view are not living in the real world. We are told that those who have made profits should now pay tax, the


implication being that they have not made any contribution from their profits. But they have: they have paid 40 per cent. capital gains tax. The hon. Member for Workington and others now want to levy a super-tax.
The hon. Gentleman says that he has been converted to privatisation. Could it be that one reason why privatised companies have been so profitable and successful is that, at the time of privatisation, no one realised the true level of the inefficiencies and bad management of the industries concerned? That is borne out by the fact that the hon. Gentleman says that he is now a convert to privatisation.
The windfall tax is not a fair tax, because it is a tax on success. I should like to hear the Minister's comments about two electricity companies, East Midlands Electricity and Yorkshire Electricity, which are of similar size. After the first year of privatisation, East Midlands Electricity made £109 million while Yorkshire Electricity made £100 million. East Midlands Electricity had a market capitalisation on flotation of £523 million while Yorkshire Electricity's was £497 million.
In the last of the first four years of privatisation, 1994–95, the two electricity companies were roughly the same size. East Midlands Electricity made a profit of —164 million and Yorkshire Electricity £161 million. One would think that they would pay roughly the same amount in windfall tax, but that is not so. Yorkshire Electricity is paying 40 per cent. more—£39 million-worth. One of the principal reasons is that, in 1993–94, East Midlands Electricity had a bad year. It made some bad investments, its management took its eye off the ball, and profits fell from £116 million to £27 million. As a result of that inefficiency, the company will pay less windfall tax than Yorkshire Electricity.
Yorkshire Electricity was more successful than East Midlands Electricity in its diversification. It made £18 million from an investment in Sweden. That has nothing to do, of course, with the price at which the privatised companies were put to the market, yet Yorkshire Electricity is having to pay windfall tax on its profit of £18 million. As I have said, we are not dealing with a fair tax. There are many anomalies, and the outcome is a tax on success. Those companies that have been successful will pay much more than those that have been failures.
The hon. Member for Workington told the Committee how pleased young people in his constituency would be about the windfall tax. I represent an area in which there is a high percentage of pensioners, and they are rapidly beginning to realise that the windfall tax is not a good tax for them.
It is significant that, during the Budget statement, the Chancellor of the Exchequer made it clear to the House of Commons that there would be no increases in prices. The regulator, however, has said that he is taking the windfall into account, so prices will be affected. We were told that there would be no decrease in investment and no decrease in service. So from where does the money come? There is only one place from which the money can come, and that is from the funds that are available for distribution in the form of dividends. Who are the largest shareholders in the utility companies? The large financial institutions, especially pension funds. That is one part of the triple whammy that the Budget has introduced against pension funds.
It is not the fat cats who will be taxed but future pensioners; they will probably be taxed more than today's pensioners. That is why we are dealing with an iniquitous tax. It is a means of taxing by stealth. The burden of the windfall tax will be felt not by the ordinary man in the street today but by future pensioners. It is a retrospective, unfair and bad tax, and I shall vote against it.

Mr. Derek Twigg: The Conservatives have opted for their usual scare tactics. I recall that the previous Prime Minister, the right hon. Member for Huntingdon (Mr. Major), sent out letters to perhaps millions of shareholders before the general election. Indeed, my father received one. As far as I know, he has never had a share in any of the utilities. That being so, I am not sure why he received the letter. However, it set out how much the windfall tax would cost the people of this country. The message was that they should not vote Labour. That approach did not work then and it will not work now. The Conservatives lost the mood of the country—that became clear on 1 May—and they have lost it again.
The windfall tax has been warmly welcomed in my constituency. When I was campaigning during the election campaign, many people said that they considered it to be a good idea. They were supportive because of the reasons for such a tax. They understood that it would create jobs and other opportunities for young people and the long-term unemployed.
Conservative Members have talked about the utilities—North West Water is an example. There is talk also about the utilities being sold off cheaply and the result being excessive profits, fat cats and price rises. All these issues come to mind. They were mentioned to me on the doorstep by those who are now my constituents. The shadow Chancellor of the Exchequer did not say that prices had doubled in the water industry. It is not all roses in the garden.
Basically, the windfall tax is seen as a fair tax.

Mr. Peter L. Pike: My hon. Friend referred to North West Water, which came on the market at a knock-down price. People who live in the north-west—I am one of them—can be supplied with water by only one company. Similarly, sewage treatment can be undertaken by only one company. That being so, the company cannot fail to make a profit. That is why the windfall tax is fully justified.

Mr. Twigg: I entirely agree with my hon. Friend. He will be aware that the number of complaints about North West Water has increased significantly over the past few years.
It is said that the windfall tax is a temporary measure but will result in permanent benefits, which will be important to my constituency. That is why the measure is so warmly welcomed. In my constituency, 44 per cent. of young people do not have a job and are not in training or at college. That is a major problem. The windfall tax will bring about improvements, and the problem in my constituency will become less severe.
There are social problems when young people have not been in employment since leaving school. They may have moved from one temporary job to another. In many families, two generations have not been employed. Young people were shabbily treated by the previous Government and the windfall tax is a means of addressing the problem.
The largest employer in my constituency is the chemical industry. The number of people employed in it has been drastically reduced during the past 10 or 15 years. Middle-aged men, especially, have lost jobs and are unable to find new ones. They are having a great struggle. They must acquire new skills, and that means retraining. Many people telephoned me to speak about these matters shortly before the election. They were keen to obtain more information, and keen for Labour, when in government, to take the issue forward.
The windfall tax is about bringing hope and benefits to people in constituencies such as Halton and, indeed, generally. The tax is warmly supported in my constituency and its introduction will be welcomed. The sooner it is implemented, the better.

Mr. Quentin Davies: The windfall tax, by its very definition—I do not think that Labour Members will be able to quibble with this—is arbitrary, discriminatory as only some companies will pay it, and retrospective. It is—[Interruption.] I shall happily give way to any Labour Member who wants to quarrel with the three simple propositions that I have put before the Committee. Does the hon. Member for Workington (Mr. Campbell-Savours) wish to take issue with me? He is shaking his head, but it is in the nature of a windfall tax that it should be retrospective, arbitrary and discriminatory. It is quite right that we should give the Government a hard time on this: it is scandalous. They should be made to face the essential aspects of the windfall tax they have introduced.
Irrespective of whether we lose the Division later this evening, it is right and important that the Committee should lay down a marker that the windfall tax cannot be got through the House with impunity; otherwise, Governments in the future—no doubt this Government, as I know they have four or five years to run—will regularly resort to discriminatory, arbitrary and retrospective taxes. A very worrying precedent will be created if the tax gets through the Committee this evening.
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Why does it matter? I shall deal with the point about the tax being retrospective. When the public, individuals, little old ladies, business men with some money to put aside, people providing for their pensions, institutions that manage the pension funds of millions of people, and foreign investors, who, traditionally, take a favourable view about investing in this country—all sorts of institutions and individuals—applied for shares when the utilities were privatised, they read the prospectuses, which were thoroughly and professionally drafted and written. As far as I know, my old firm had nothing to do with the initial privatisation issues. I can say that without fear of any conflict of interest.
People who subscribed to the shares believed that the essential facts relating to their investment—so far as they could be predicted at the time—and above all the regulatory and political regime within which those companies would exist, had been fairly, adequately, indeed definitively, described in the prospectuses. We now find that that is not true, because another Government have been elected and have said, "No, we are going to change the framework of understanding against which

people took the decision to invest in shares,"—whether it was a widow investing £200 or a pension fund investing tens of millions of pounds. "We are now going to change those rules."
This is a very serious matter. It is not something that can be done with impunity. It means that, the next time a Government, of whatever political complexion, offers shares to the public, or for that matter a debt issue, a gilt issue, which Governments do all the time—it is terribly important that the interests of the whole country, of every citizen and taxpayer, irrespective of his or her political views, are considered—the offer of shares or stock will be received by the market on the basis that the political risk attached to subscribing to shares is now much higher in Britain. That is regrettable, because this country always had a favourable, stable climate of investment. Traditionally, it had integrity in these matters because our Governments have had a reputation for straight dealing, not retrospective dealing. That reputation will be damaged today.
The country's interests will be seriously damaged if the windfall tax is passed by the House. For ever more it will be said that the British Government may come forward with a prospectus and say, "The following are the particular terms on which we are prepared to sell shares, and the following is the regulatory and tax climate in which companies will continue to operate in the United Kingdom," but, in practice, a year or two later, another Government may come into office and decide to change retrospectively the rules of the game.
That is happening now. Such an act leads to the de-rating of a country's credit rating. Every issue made by a Government who develop such a reputation, or by a country with Governments who act in such a way, suffers a discount. The price in the form of interest rate that they have to pay when they wish to raise debt is correspondingly higher; the price at which they can sell shares is correspondingly lower. The whole country pays a long-term price for the loss of that credibility and for investor confidence being damaged in that way.
There are hon. Members on both sides of the House with experience of development economics who have been involved with third-world countries, many of which are trying to extract themselves from appalling structural poverty. They will have looked at the various controversies in the academic and political worlds about what characteristics are right for a country to try to develop to help its way out of poverty and what framework is needed to generate wealth.
Everybody who has looked at these matters and at the experience of countries in the third world will recognise that there is an enormous premium to security of investment, to integrity, in generating investor confidence. There is an enormous discount for countries that have in some way damaged their credit standing, that have damaged investor confidence, that have damaged the propensity of overseas investors to invest because they have developed a reputation for retrospective taxation or for placing retrospective burdens on investors.
A retrospective tax is very damaging. It cannot be imposed with impunity. It will not be done with impunity in this country. It is deeply damaging to many of our principles of equity. It is also deeply damaging in a quantifiably economic sense. That is the first thing that I have against the windfall tax. It is the reason the


Committee should think very carefully before we let it through. If we let it through, a precedent will be created and the Government will no doubt consider it an easy way to raise money.
Many of us feel, on the basis of two months' experience, that we have a very irresponsible Government—a Government who brought forward a Budget that directly contradicts the diagnosis of the country's economy in the Red Book. A country run by such a Government obviously has some difficult moments ahead, and there is no doubt whatever that the Government will run into severe budgetary and economic problems.
If the Government feel that they can get away with the easy way out, embarking on some retrospective, arbitrary new tax—they will if we let the tax through this afternoon without maximum protest—further damage will be done to this country, to the investment climate and to the propensity of domestic savers to place their money in privatisation issues, debt issues or any other issue of the British Government. Further damage will be done to the willingness and propensity of overseas investors to come to this country. It is a very serious matter indeed.
I can see that the hon. Member for Workington is trying to intervene. I would be delighted to give way to him.

Mr. Campbell-Savours: I was not seeking to intervene, but the hon. Gentleman invites me.
The hon. Gentleman used the term "precedent". Was not the precedent set in the early 1980s with the banks?

Mr. Davies: We had a very interesting debate yesterday about whether it is a good idea to try to railroad a Finance Bill through the House without giving people outside time to read and digest the text of the Bill, and without giving hon. Members time to consult outsiders—or, indeed, simply to think about the matter themselves and consult their research assistants. We debated whether that was a sensible way in which a modern, sophisticated democracy should allow complex and economically important legislation to be pushed through the House. (Interruption.] I am coming to the hon. Gentleman's point; I shall not forget him.
When Conservative Members discussed this matter yesterday, Labour spokesmen could not think of a way to address our serious criticisms on their merits. All they could say was that past Conservative Governments had sometimes guillotined Bills. As a result of yesterday's debate, it became quite clear that in fact there were no exact precedents, and no Conservative Government had railroaded a Finance Bill through the House so rapidly and with so little excuse.
Nevertheless, I accepted then, and do so again now, that it was unfortunate that some Conservative Governments, possibly without waiting to see what would happen when we got into detailed discussion of a complex Bill—for example, a Finance Bill—in Committee, had by way of anticipation introduced a timetable motion. I said that that was a mistake. It was a mistake in itself and it was a mistake because it created a bad precedent. Here we have the Government taking that bad precedent further.
I make no apology for the tax on banks to which the hon. Member for Workington referred. I was not in the House at the time. Had I been, I am not at all sure whether I would have supported it. As I was not, it would

be hypocritical to say whether I would or would not because we do not know what I would have done. However, for years before I came into the House I have held to the strong belief that retrospective legislation is obnoxious and that retrospective taxation is particularly obnoxious and damaging.
It is an extraordinary indictment of the moral confidence of the new Labour Government, elected with this enormous majority, that the best way in which they can justify their actions is to say that the Tories did almost as badly, because none of the precedents is quite up to the measure of what they now propose.
If the Government were confident of their mission to bring some good to Britain which previous Administrations had failed to do, they would be the last to mention Conservative precedents, except, possibly, as an example of something on which they wished to improve. Instead, the Labour Government are incapable of justifying on their merits the serious measures that they are introducing—yesterday, guillotining the Finance Bill before it had even started, treating the House of Commons and its procedures with considerable contempt, and today introducing a windfall tax with all those elements of retrospectivity and arbitrariness to which I have already referred.

Mr. Campbell-Savours: I am fascinated by the way in which the hon. Gentleman dissociates himself from Conservative history. Was not there a levy on the gas companies in the mid-1980s? Do not I remember some Budget measure to do with some levy being imposed on the gas industry?

Mr. Davies: I have no memory of any such thing, and I do not believe that any such thing took place during my time in the House. I know the hon. Gentleman well and I have a high regard for him as a parliamentarian, but I have much less regard for him as a historian as a result of the clanger that he dropped earlier, to which I drew attention at the time in an intervention which he graciously allowed me to make during his speech.
Therefore, I have little confidence that that suggested levy is anything other than a figment of his imagination—a hard-pressed imagination, I suspect, because I sense the embarrassment among Labour Members as I say, frankly, that it is not good enough to come before the House and justify otherwise unjustifiable measures on the basis that one's opponents did almost as badly in the past. A Government who had any kind of self-respect would wish to justify their measures on their merits, and that they have spectacularly failed to do.
I now return to some of the important aspects of clause 1 on which I touched earlier—its arbitrariness and unfairness. The windfall tax will impact on the current generation of shareholders, not on the generation of shareholders who supposedly—supposedly—enjoyed the putative windfall gains described in the Bill.
That point has been commented on already. It is clear that anyone who bought into the companies subsequently, without realising that the Labour party planned a windfall levy, will have suffered considerably, and those shareholders who sold out before the imposition of the windfall tax, or before the markets began to discount its likely imposition, will not have suffered at all.
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Let us consider the specific human reality behind this. Who are the shareholders who, for the most part, have been the most loyal and longest-term shareholders? I should say straight away for the avoidance of any doubt that to a small degree I am one of them. I applied in my name and those of my children for a number of these privatisation issues. I thoroughly disagree with the hon. Member for Workington: the privatisation of those companies was a brilliant idea. The great success of those companies since privatisation and their emergence in many cases as multinationals with an international position in their sectors, thoroughly justifies that.
The statistics produced by the stock exchange bear out my experience that the shareholders who have been most loyal to those companies, the longest-term shareholders, have been the small shareholders, many on small and below average incomes, who applied for a few hundred pounds worth of shares way back in the late 1980s or early 1990s when the companies were privatised. They are the shareholders who tended to hold on to their shares and they will now suffer from the retrospective levy. They will be the losers from the windfall tax.
It is fair comment, on the basis of anyone's experience of the financial markets, that on the whole the smaller the holding, and probably the less sophisticated the investor, the lower the rate of turnover in the portfolio. In many cases, small shareholders do not have a portfolio. They have one or two shareholdings to which they stick. They do not churn their portfolios every week or month. They do not get up in the morning and look at their Reuters screen or their Topic screen and decide to buy or sell such and such a share, switch between deutschmark and yen or hedge their position by selling the index, or something of that kind. It is the sophisticated shareholders who do that. It is unlikely that they would have a single shareholding in their portfolios for six, seven or eight years. Such shareholders have most probably sold out. Few of them will have exactly the same shares that they bought at an initial flotation.
The extraordinary effect of this most unpleasant levy—unpleasant because it is retrospective and arbitrary—has been to impact on the small shareholder. We all have in our constituencies small shareholders, often people who have been investing for their retirement or retired people, pensioners with just a few hundred pounds in privatisation shares, who have held the shares from the beginning who now find that they are suffering. In contrast, the sophisticated professional investor got out a long time ago and can wave goodbye to the windfall tax. That is a pretty perverse and unpleasant consequence of the tax. It may not have occurred to the Labour Government, but if it has I hope that it is a consideration that will stick in their gullets.
My hon. Friend the Member for East Yorkshire (Mr. Townend) referred to another perverse aspect of the windfall tax: the discriminatory effect not just between one class of shareholder and another but between one company and another. I listened with great attention to my hon. Friend's speech. He had obviously done a lot of homework, because he quoted facts and figures about the sales and profits and market capitalisations of Yorkshire Electricity and East Midlands Electricity during the relevant period.
Anyone with even a passing acquaintance with those companies knows that there was a considerable contrast, in that East Midlands Electricity engaged in a diversification programme, going into activities that were not regulated, not in any sense monopolistic activities or activities which could possibly be justified as being targeted by a windfall levy, and it got it wrong, while Yorkshire Electricity on the whole got it right. That is an extraordinary state of affairs, because we now find that the tax will penalise those who got it right, and will let off, in relative terms, much more lightly those who got it wrong.
Here we are back to the old socialist principles that have been around ever since the Labour party existed—clobber success and reward failure. What kind of a principle is that? It is a principle, in the name of redistribution or in the name of God knows what, which can lead only to the progressive decline of the economy. People will be deterred from making a higher risk, higher reward investment, because if they get it right they will lose the proceeds through a discriminatory and retrospective tax—which the windfall levy undoubtedly is—and if they get it wrong they will lose their money anyway. So why invest, and why take any risk?
Any economy that applies that appalling principle will pay a high price. We paid a high price when the Labour party was previously in power. The Labour party in the 1970s ran the economy on the principle that the successful should be penalised and punished and the weak should subsidised. We recall those dreadful subsidies for loss-making nationalised industries. That formula produced, in aggregate, an increasingly weak British economy across the board. We paid a high price then, and that principle is again being applied in the proposed windfall tax. That tax will be a severe impediment to companies that have done an extraordinarily good job for the British economy. Its economic consequences are of considerable concern.
I make no apology for dealing with some of the human and philosophical aspects of this matter, including the precedent effect of the tax. I do not believe that man lives by bread alone: economics is not everything. It is right to consider first issues of principle and the impact on the lives of human beings. The impact on people's savings has an effect on their sense of independence and security, particularly in old age.
Nevertheless, we must consider the economic consequences. Here is another classic illusion in Labour thinking. They seem to believe that they have discovered two invisible taxes. They are taxes in that they raise revenue, but are not taxes in that they do not do any economic damage. The Labour party believes that they do not do any political damage either. Those two measures are the abolition of dividend tax credits and the imposition of a windfall tax.
No doubt the Government have congratulated themselves by saying, "Isn't this extremely clever of us? We have found the touchstone that turns everything to gold. We have found the holy grail. We have found a form of tax that does not damage the economy or our political standing." They are completely wrong about that. There is no such thing as a tax that does no damage to individuals or to the economy. Any Government proposing to levy any form of tax should consider carefully what damage it does and try to target it so that the damage is minimised.
We cannot accept this thoroughly dishonest attempt to pretend that some taxes do no economic damage and can be levied with impunity on the British public and on the British economy. The windfall tax will damage the British economy because it will damage the privatised utilities. They are now extremely successful companies, whereas when they were nationalised many of them had to be subsidised and almost all of them were under-invested and showed up badly in international league tables of productivity, profitability, environmental standards and consumer service.
Sir Alan, you and I are old enough to recall the days when utilities were nationalised and the tremendous difficulties we had getting a telephone or a gas pipe repaired. Their service was bad, but they are now astonishingly successful. British Telecom has become one of the leading telecommunications companies in the world. British Gas has become a major player in the world, and our electricity generators have become major players and investors in many parts of the world.
It is a proud record. The considerable price reductions—up to 40 per cent.—are an extraordinary example of productivity gains being passed to the consumer. That could happen only in a privatised system. In a producer-oriented, nationalised economy, productivity gains are not made available to the consumer.
Productivity gains have been passed to the consumer, and there have been enormous improvements in service. Many companies have made enormous international investments, so they have a stream of international earnings. That is a great advantage to them, because it reduces the volatility of their earnings, and to the country, because it contributes to our overseas earnings.
We are now singling out those companies for a windfall tax. If a company's after-tax profits are reduced, the propensity of that company to invest is also reduced. The Paymaster General, who was bold enough—perhaps thoughtless enough—to put his name to the tax and to come and defend it at the Dispatch Box, ran a distinguished British manufacturing company. He is looking askance, and does not want to look me in the eye. He knows perfectly well that, if the return from prospective investment is reduced, the propensity to invest is also reduced. If he wants to argue with that fundamental principle of economics and financial theory I should be delighted to give way to him. He is looking at his tie or at his feet. He is looking away from me, because he does not want to intervene. He knows that he cannot quarrel with that point.

Mr. Nicholas Soames: Does my hon. Friend agree with me that the Paymaster General, who has a distinguished record in business—he is a shrewd and capable business man—would not have taken kindly to Jaguar being subject to a windfall tax?

Mr. Davies: The hon. Gentleman would have been failing in his fiduciary responsibility to his company, its shareholders and employees who depended on him if he had not fought like a cat against the imposition of such an arbitrary, obnoxious and unjustifiable levy.
Despite our provocation, the hon. Gentleman is looking into outer space and is determined not to respond to our comments. He feels guilty, so he will not take issue with us on the principles of economics or financial theory. He

will not rewrite the textbooks, because he knows perfectly well that, if the prospective after-tax profit from any investment is reduced, the propensity to invest will be reduced. To justify any investment, the prospective yield will have to increase. Less investment will be undertaken, so there will be less growth and less employment generation in those companies in the future.
Those companies have risen like the phoenix from the ashes of the nationalised economy that we inherited in 1979. They have flown proudly like eagles around the world. They have made major strategic investments in North America, in the former Soviet Union and in the rest of the single market. That is an impressive record.
Sooner or later, any company that is successful under this socialist regime will be penalised. The privatised utilities are to be penalised for their pains because of their disproportionate contribution to the national wealth and their contribution to the technological, environmental and productivity gains in their own sector. Their contribution should justify some reward and recognition, but it is being met with an invidious penalty in the form of a windfall tax. They will have to reduce their investment plans and their potential growth prospects will be blighted. Their capacity to generate employment in those important industries will be significantly reduced.
We are told that the money will fund a welfare-to-work programme. Make no mistake about it: that shows that the concept of new Labour is a complete fallacy. There is no "new" about it; it is old Labour—old socialism. We had to fight it in the 1970s and, indeed, in the 1940s. We had to fight it in order to lay the basis of the successful economy that we now have, which has been so threatened by events on 1 May.
Money is being taken. In this instance it is being taken in a particularly invidious, discriminatory and retrospective fashion from successful companies. The levy will reduce job creation in those companies; it will reduce viable, sustainable, productive employment in internationally competitive firms. The money raised—after, no doubt, a good many administrative costs have been subtracted from it—will be used to try to generate artificial jobs through subsidies elsewhere. Viable, sustainable jobs will be removed and replaced by jobs that can survive only as long as the subsidies continue. A necessary mathematical consequence of such a policy—as surely as night follows day—will be a reduction in average productivity throughout the economy.
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This is a sad day for the economy. We are not talking about small amounts of money. A significant precedent is being created—a precedent that will be regretted, not merely by those who work, aspire to work or might have hoped for attractive careers in the successful industries involved. Many of those industries are technology-intensive and many are at the frontiers of environmentally friendly business and therefore have much to offer similar sectors of activity around the world. Jobs and prospects will be removed and replaced by the prospect of subsidised jobs elsewhere in the economy. It is an extremely bad deal.
I happily give way to my hon. Friend.

Mr. Soames: I do not wish to intervene. I am listening to my hon. Friend's speech.

Mr. Davies: I am sorry. I must have misunderstood my hon. Friend's hand gestures.
We have heard many interesting speeches from hon. Members on both sides of the Committee but, during my speech and those of other Conservative Members, what has been notable is the silence of Ministers. They just sit there and listen to Conservative Members making what would, if they were not telling the truth, be deeply shocking allegations. We are saying, "Here we have a Government who are arbitrary, unfair and devoid of any sense of justice, introducing retrospective legislation and taxes that will damage the British economy." We can say all that without the slightest fear of contradiction, because Ministers clearly have no arguments to advance.

Mr. Geraint Davies: rose—

Mr. Davies: I see a Labour Back Bencher gallantly rising to assist Ministers, but I think that my point has been made.
This is a bad day for the House of Commons, because a Finance Bill is being railroaded through. It is a bad day for tax law, because, if the Government carry the Division at 7 pm—as I fear they will—a sad precedent will be created: a retrospective levy will be imposed on taxpayers. It is an extremely bad day for some very successful industries, which, if we had a rational, responsible Government who cared about our economic future, would receive accolades for the success that they have achieved since privatisation. All that this socialist Government can do—I use the word "socialist" advisedly, because that is exactly the character that the Government's legislation displays—is say, "Ah, someone is successful, someone is making money, so we are going to grab it and take it away."

Mr. Ross Cranston: I am sorry that I was not present at the beginning of the debate, and especially sorry that I was not present when the shadow Chancellor opened for the Opposition. My hon. Friend the Member for Dudley, South (Mr. Pearson) and I were attending on our right hon. Friend the Home Secretary. One of my hon. Friend's constituents was presenting a petition to our right hon. Friend, who, as a result, has persuaded the West Midlands police to increase the number of policemen on the beat in Dudley. We are very thankful for that.
Let me begin by talking about the use to which the money raised from the tax will be put. It will be used primarily for the welfare-to-work programme. Some of my hon. Friends have eloquently described the justification for the tax—the new deal for young people—and the tragedy afflicting many of those young people, who have no hope and no jobs to go to. I was surprised when the hon. Member for Gordon (Mr. Bruce), opening for the Liberal Democrats, said that we should divorce the tax from the expenditure that might result from it. I had understood that the Liberal Democrats were keen on

hypothecation, and I see an analogy between that and our attempt to use the windfall tax to give opportunities to young people.

Mr. Malcolm Bruce: Just for the record, what I said was that spending the money raised from a tax on good services did not make it a good tax if it was a bad tax to start with.

Mr. Cranston: The hon. Gentleman still does not appreciate that the use of moneys can sometimes justify the tax from which they are raised. I shall say more about that in a moment, but I want to concentrate on the details of the windfall tax itself rather than on the use to which the money will be put.
As the Bill makes clear, this is a one-off tax on the excessive profits of privatised utilities—although Opposition Members have raised the possibility of further one-off taxes. There is no doubt that the appalling behaviour of those at the top of some of those utilities bolstered our case for the tax, but there were three principal justifications for it.
First, there was the undervaluation of the assets at the time of privatisation: that is why the formula referred to in the Bill mentions the price placed on the utilities at the time of sale. Secondly, many of the companies continued, and continue, to be monopolistic suppliers of essential services. That is why the Bill identifies the industries that will be subject to the tax in terms of economic regulation.
Thirdly, the original price controls set by the Conservative party on privatisation were excessively generous. There is no doubt that the companies made excessive profits: nearly every privatisation on which the Public Accounts Committee reported was said by the PAC to have involved excessive profits—and those profits were, of course, at the expense of consumers. The Bill identifies those justifications, which provide the case for the windfall tax.
The formula in the schedule looks to the value placed on the companies at the time of sale and then to the average annual post-tax profits for four years following privatisation. Conservative Members have said a great deal about unfairness. We have heard about the retrospective nature of the tax. As my hon. Friend the Member for Workington (Mr. Campbell-Savours) correctly pointed out, the Conservative party imposed retrospective taxes. The best example is the 1981 windfall tax on the banks.
It is said that the windfall tax is arbitrary and discriminatory. As hon. Members know, taxes are often attacked on that basis. When progressive income tax was first introduced, it was said to be arbitrary and discriminatory. Some Conservative Members may still take that view—I do not know. I am prepared to allow them to intervene if they want to justify that approach. The same was said about inheritance tax.

Mr. Shaun Woodward: Will the hon. Gentleman explain the parallels he sees with the 1981 legislation on bank deposits?

Mr. Cranston: The hon. Gentleman has missed the point. The point that I was making was about retrospective taxes, and there is an example of the Conservative party imposing such taxes.

Mr. Woodward: Will the hon. Gentleman explain in what way the 1981 bank deposits legislation was


retrospective, as my recollection is that it imposed a levy on the banks' very large profits at that time, based on changes that we had made to monetary policy? Perhaps the hon. Gentleman would like to elucidate and explain his comparisons and the retrospective nature of that legislation.

Mr. Cranston: I do not want to be diverted from my main argument by the hon. Member for Wigan.

Mr. Woodward: Wigan?

The First Deputy Chairman of Ways and Means (Mr. Michael J. Martin): Order. The hon. Gentleman will not intervene in that manner.

Mr. Cranston: I apologise for misnaming the hon. Gentleman's constituency. The point is that that legislation was retrospective in effect.
Conservative Members have raised various points about the unfairness of the tax. They have said that it is unfair to some utilities rather than to others. The regional electricity company in my area has put that argument to me. It has pointed out that other such companies have engaged in expensive diversifications. Money was wasted, but the effect is that the company's profits are higher than those of the companies that diversified. The Institute for Fiscal Studies made the point, which was repeated by Conservative Members, that many of the people who gained immediately after the privatisation have moved on, and that is true, but Conservative Members have to take into account that, in imposing a tax, there is a need for simplicity.
In tax law, there is always a tension between simplicity and producing absolute fairness. The Government have rightly taken the approach of a simple formula, as set out in the schedule. Any other approach would open opportunities for avoidance. In this morning's Financial Times, the former tax adviser to the right hon. and learned Member for Rushcliffe (Mr. Clarke) makes this point:
Successively more complex sets of rules have been created. which in turn provide opportunities for exploitation. A simpler tax system, with fewer reliefs, exemptions and discontinuities would, in the long term, frustrate most of the tax avoiders' ploys.
The Government have taken the view that the simple formula is the right approach, and I agree.
5.45 pm
Having listened to the contribution of the hon. Member for Grantham and Stamford (Mr. Davies) to the debate, one would think that the sky had fallen in. There is much hyperbole. He said that there had been a decline in the economy. I am not sure that anyone else has seen that. The fact is that the windfall tax is water under the bridge. It is a popular tax. Its imposition has been legitimised by the country as a whole. The movement in utility share prices demonstrates that the utilities accept the tax as a fact of life. Frankly, it is not as high as was expected. Most important, uncertainty—inasmuch as there was uncertainty—about its impact has been removed. As we predicted, balance sheets are strong enough to cope with the tax. Informed commentary is that it will generally not have an impact on future dividend plans.
My right hon. Friend the Chancellor of the Exchequer has said that the tax should not have an impact on prices, and that must be the case: consumers must not suffer

twice round. I made that point on Second Reading and I reiterate it. I hope that the steps taken by my right hon. Friend the President of the Board of Trade will ensure that the tax does not lead to price increases for consumers.
Conservative Members have generated much hot air. There is much hyperbole. The tax is legitimate, and I support its introduction.

Mr. Mike Hancock: I am delighted to be given the opportunity to contribute to the debate. Like the hon. Member for Workington (Mr. Campbell-Savours), who has unfortunately left the Chamber, I had not intended to speak, but I was prompted to do so by some of the things that he said, particularly in relation to the way in which the windfall tax would be spent. I hope to devote some time, as he did, to the benefits that Labour says people in all the constituencies of the United Kingdom will enjoy from the windfall tax.
My hon. Friend the Member for Gordon (Mr. Bruce) spelled out the issues concerning the tax itself and why we do not support it. The way in which the tax has unleashed expectations that will never be fully realised is another issue. Over the past couple of years, I have looked on at debates in this place. Once the Labour party had confirmed the policy that it would go for a windfall tax, I was surprised by two or three major things.
First, I was surprised that the then Conservative Chancellor of the Exchequer did not grab the money with both hands in his last Budget and attempt to use it, as Tories have traditionally done, in local government at least, to buy the Tories out of a political hole just before an election. In the past, they have raided whatever balances they have had and used whatever money was at their disposal to buy votes, but he chose not to do that. That other thing that surprised me and, I am sure, many of the people I represent in Portsmouth, South, was that the money was still there. Companies had not made greater efforts to dispose of it, as most reasonable people would have imagined they would. It was there to reinvest and reduce the high charges for their services.
The overwhelming majority of people have embraced the tax because most think that they were ripped off in the first place when the companies were sold. The companies were sold at hopelessly undervalued prices at a time when most people felt that the companies were better and safer in the hands of the public sector. The legitimacy of the tax among the general public is that they feel that they are getting back what they should have had in the first place. But most people are not privy to the debate about who is to pay.

Mr. Tim Loughton: I am intrigued by the hon. Gentleman's point, because the whole point of our opposition to the tax is that there is no pot of gold in these companies. Having spoken to my local utility company, I can say that the result of the tax will not be the company writing a big cheque from its surplus cash, but that it will borrow an increasingly large amount of money. That will have an impact on the regulatory formula, which will determine the pricing for consumers and comes up in 2000. Is the hon. Gentleman making the same mistake as Labour Members in believing that there is a pot of gold from past excess profits in the


utilities, when in fact the money has been reinvested? Does he accept that companies will have to increase their borrowings to pay this large and discriminatory tax?

Mr. Hancock: The squeal of anguish from the privatised utility companies has been about as loud as the engine purr of a Jaguar when it is switched on for the first time—very muted indeed. There was a ready acceptance on the part of the privatised companies that the tax would be introduced and that they were able to afford it. But that does not make it right, and that is why my hon. Friend the Member for Gordon made his telling point.
There will be claims that manifestations of great goodness will come from this tax, and that the welfare-to-work programme will deliver measures which will be welcomed by a lot of people. That relates to my point about creating expectations which cannot be achieved. I represented Portsmouth, South 10 years ago at the height of the Thatcher Government. I lost count of the number of times that the young people of Portsmouth, South and the country were offered golden opportunities to get retraining, a longer stay in education or a chance to get back to work.
The programmes changed virtually monthly, yet few people succeeded in getting back into long-term employment. The regularity of the changes bewildered the young people concerned, and the depression which many of them felt deepened as they struggled to find a job. That depression is there today. Very few of us will not have experienced the pain and anger of a generation of young people who have left school, or are about to do so, and face a bleak future.
Many young people have grasped enthusiastically what was said before and during the election—and in the months since—as something that will offer them salvation, and the welfare-to-work programme might, in the short term, solve the problems of that group. Some, if not all, may get the job they desperately need. But the windfall tax is not a visionary tax to fund a programme to deliver opportunities for the length of this Parliament. Such a system would mean that those young people coming on-stream in five years' time would be the beneficiaries of some of the measures.
Most reasonable people do not believe the Chancellor's comments about where the on-going money will materialise from, and one would have to be a super-optimist to believe him. He believes that people who are currently unemployed will be retrained, gain employment, generate tax and come off benefits to clear a path for the next generation. But the figures do not add up. The rhetoric is similar to that of the 1980s about promises of good things to come.
I was heartened by the contribution of the hon. Member for Bolsover (Mr. Skinner) to yesterday's debate, and I am disappointed that he is not here now. He made a gallant attempt to put the socialist view. It was like "The Agony and The Ecstasy". The shadow Leader of the House said how outraged she was and how nervous her Tory colleagues were at the thought that there would be a guillotine. The hon. Member for Bolsover rightly said that we had had guillotine after guillotine for 18 years. He reminded me of the Lone Ranger, firing silver bullets of socialism, but unfortunately none of the braves in his

tribe was ready to jump up and be his faithful Indian partner, Tonto. He made enough offers, but they distanced themselves from him.
The hon. Member for Bolsover referred to people's expectations, and what had happened in the past. We must be careful not to believe that the windfall tax is the solution to the problems of many people, particularly young people. In their hearts of hearts, most young people do not believe that. They have an in-built cynicism, created by years and years of broken promises by successive Tory Ministers. I hope that they are proved wrong in that respect and that there is long-term substance to the proposal.

Mr. Christopher Leslie: Does the hon. Gentleman support welfare to work as a principle? If so, does he believe that it should be paid for by his party's stretched-out 1p on tax?

Mr. Hancock: I support welfare to work enthusiastically and wholeheartedly in the hope that hon. Members who vote for it for one year will share my conviction that it should be a five, 10 or 15-year programme. Welfare to work must have the consistency that far exceeds the expectations of the windfall tax. It must be deliverable to the next generation of young people, but, sadly, that does not seem to be the case.
I wish to talk briefly about the companies themselves. I feel that people will be paying twice. They paid first when the public assets were undersold, when people were deprived of a public asset on the cheap. The tax is seen to be a way of getting back at those who got rich quick on the back of privatisation. But my hon. Friend the Member for Gordon and others have explained that it will not be the fat cats earning £350,000 a year who will pay, but those who pay for the services provided by the companies and the pension funds which derive their incomes and their ability to pay enhanced pensions from the companies. The people we represent will pay twice.
There is a suggestion that everything in the private companies is wonderful and that there is no complaint about them. That is not right. Most of us receive complaints weekly, if not daily, about the various companies which make up the group to be taxed—gas, electricity, telephone and water companies. All of them materialise in reality for the people we represent as major obstacles to a decent life. They have problems with all of them. Many of the problems are associated with paying the high cost of using the service. The cost could and should have been greatly reduced if the amounts of money that are being talked about were genuinely available.
The windfall tax is a gimmick.

Mr. Campbell-Savours: Is £5 billion a gimmick?

Mr. Hancock: It is a very nice gimmick. If one is going to introduce a gimmick, one may as well introduce one that brings in £5 billion and use the money, rightly, for things that will do some good. However, we believe that the Government should have taxed in a way that offered opportunity for the long term rather than grasping something that would provide short-term gain and hoodwinking people into believing that a long-term solution was being offered.

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Mr. Stevenson: Like the hon. Member for Portsmouth, South (Mr. Hancock), I did not intend to speak in this debate. I have been goaded into speaking by a speech from the do-nothing Liberals. I heard justification of the windfall tax, and, from the hon. Member for Portsmouth, South, references to benefits and to the failures of previous training and work schemes. We all share the criticisms of such schemes, but I did not hear anything positive from the hon. Gentleman as to what we should do.
It is perfectly legitimate for any right hon. or hon. Member to disagree with another, but to criticise the windfall tax simply out of concern about the previous Government's schemes and to say that, by some magical formula, it is unfair, is to miss the point altogether.
I asked the Library to do some research on the difference between the proceeds from privatisation of the utilities, not including the railways, and their stock market share price the minute they were floated. I asked the Library to tot up the difference. It was almost £6 billion at the outset of privatisation and it has increased over the years. So the snapshot figure of £6 billion by which the Government undersold public assets, and therefore robbed the public, is a conservative estimate.
The proposals of my right hon. Friend the Chancellor for a windfall tax are justified by what the Government intend to do with the money, which is to put young people back to work and spend £1.3 billion extra on education. What is interesting, in view of the way in which the Liberal Democrats approached the election, is that, although I listened carefully to what the hon. Gentleman had to say, I did not hear any reference to the extra £1.3 billion for education.

Mr. David Heath: The claims of the Labour party on education leave a sour taste in the mouth of my constituents in Somerset, who face this week capping proposals which will rob them of 90 teachers and increase class sizes across the county. Is that what the Labour party means by making education its priority?

Mr. Stevenson: I am certain that the hon. Gentleman will reflect on the speech of the hon. Member for Portsmouth, South and say to his constituents, who may have a sour taste in their mouths, that the do-nothing option suggested by his hon. Friend will make that sour taste even worse. That is the kernel of the argument.
The public purse was robbed of at least £6 billion. That figure can be multiplied for the years since privatisation. I am sure that the hon. Member for Gordon (Mr. Bruce), for whom I have the greatest respect, knows that that is the case. The figure of £6 billion is a conservative estimate of what was lost to the general public and the infrastructure of the country as a result of the obscene privatisation policy of the Conservative party. The question is, what does one do about that loss?
I find it remarkable that the Liberals oppose the windfall tax, but that is their decision. Apparently the Conservatives and the Liberals believe that the answer is that one should do nothing. We should just let the thing go along and let the privatised utilities continue to do what they want. South Western Electricity is alleged to have transferred some of its money to the United States so that

it will not have to take account of the measure. I find such a policy, and I believe that the country will find it, a policy of despair.
We know full well why the Conservatives oppose the windfall tax. They are ideologically opposed to it. They believe that the market should determine everything. They have swallowed hook, line and sinker the policy that says that public is bad and private is good so everything in the private sector should be maintained, even if the public at large are swindled of billions of pounds, as they have been in the past 10 years or so.

Mr. Loughton: When the hon. Gentleman asked the Library to make a detailed analysis on the basis that the public had been robbed and swindled, did he also ask for an analysis of the compensating figures in terms of the reduction in the price of services provided by utilities that every using member of the public has enjoyed as a result of the privatisations about which the hon. Gentleman is now rather upset?

Mr. Stevenson: That is a fair question. There have been significant price increases in many utilities, especially water. I am interested, as I am sure the hon. Gentleman is, in the criticism that has at last come from Ofwat of the water industry for failing to meet its commitments on investment.
We need to consider the principle. There is no doubt that billions of pounds of public assets have been transferred to the private sector at a very knock-down price.

Mr. Loughton: Will the hon. Gentleman give way?

Mr. Stevenson: I shall give way again later, but let me make some further points. The windfall tax is perfectly justified, and I shall discuss what the Government intend to do with the money from that tax.
The Conservatives' arguments about the windfall tax are more to do with protecting the companies that have benefited from privatisation. They place little emphasis on the Government's objective of using the money to begin to put people back to work. I accept that there are risks and unknowns, but I believe that they are worth taking on if we can provide an opportunity for a quarter of a million young people under 25 years of age.
If the Government succeed, as I believe they will, in their endeavour, it will be one of the most tremendous acts implemented by a Government for a generation; but we must be conscious of the risks. My right hon. and hon. Friends are conscious of them and determined to overcome them. They therefore deserve the Committee's support. I hope that they will get it, because of two principles: first, the tax is fair when considered overall; secondly, it will be put to a purpose that I defy any hon. Member to argue against.

Mr. Woodward: Clause 1, like much of the Budget, is iniquitous, inefficient and—I am afraid that I cannot agree with the hon. Member for Stoke-on-Trent, South (Mr. Stevenson)—anything but fair. The only certainty is that it will create uncertainty. It proves, first and foremost, that Labour's first instinct is always to tax, and to raise taxes again and again.
The Government believe that the tax will be palatable to the electorate because it will hit fat-cat companies. I agree that it is an advance on Labour's former tactics


of directly soaking the rich, although at least under old Labour, we could all see what they were up to. Then, there was transparency and their policy was economically coherent even though it was wrong; now, it is still wrong but it is totally incoherent. Have no doubt, this tax will hit consumers, especially the most vulnerable, and all householders will pay for it in their bills. Some people will pay for it with their jobs when they are laid off. Undoubtedly, it will reduce the capacity of companies for investment.
Hon. Members may wish to refer to the propaganda booklet called "The Pocket Budget" that Labour handed out with its Budget last week. It is a nice little booklet with a couple of pictures on the front. It is glossy, terribly well produced—the sort of thing that one would expect to have been produced by Walworth road, although I understand that Walworth road did not fund it. The booklet's pages are not numbered, but towards the back there is a section called, "Moving Towards a Fairer Tax System", which states:
We need taxes to pay for our public services. The Government believes the tax system should:
encourage work … promote savings and investment … be fair … be seen to be fair.
How does all that motherhood and apple pie rhetoric sit with the reality of the windfall tax? The tax will not encourage work or promote savings and investment. It is not fair and, with time, it will be seen not to be fair. The whole windfall idea is another clever piece of rhetoric from Labour's spin doctors. There is no such thing as a windfall tax or a free tax; this is a tax, pure and simple. It is a tax on success, on profits, on incentives to create wealth and, ultimately, on jobs.
I would like to remind hon. Members of what Adam Smith had to say about taxation. [HON. MEMBERS: "Oh!"] Labour Members may enjoy it. They may have to consider for the first time the consequences of taxation. Adam Smith thought that taxation should be efficient, equitable, certain and convenient. The only thing that we can be sure of with Labour Members is that it will be convenient, or more appropriately, opportunist.
If a tax is to be efficient, its goal must be to raise revenue with as little distortion of economic behaviour as possible. Labour Members may not like listening to economic literacy, which is a bit of a problem for them. I invite them to consider that proposition, because it presupposes that the windfall tax is a one-off tax. Is such a claim credible? What certainty is there that these, or other, companies will not find themselves on the end of yet another Labour windfall tax? Companies that may be privatised have cause to fear that a future Labour Government—God forbid that there should be one—may decide that the best way to raise yet more money for them to spend would be through yet another windfall tax.

I am sorry that the Financial Secretary is not here, but yesterday she made much of the importance of certainty. She said:
I am sure that the right hon. Gentleman will agree that what is important is certainty, and that the taxpayer knows what the tax legislation is."—[Official Report, 14 July 1997; Vol. 298, c. 26.]

Any one-off tax increases uncertainty about the tax system. If she were here, it would interesting to hear from her what certainty there can be for companies that are privatised in future. I submit that there can be none.
Is the tax fair and equitable? No, because it falls on current shareholders, many of whom did not make excess profits having bought their shares more recently. Those who made so-called excess profits have sold their shares and so will escape Labour's punitive tax plans.
What of certainty? For the taxpayer, certainty involves carrying out economic activity under a predictable tax regime. The only people who were able to work with certainty were the Financial Times journalists who were given information about the advance corporation tax changes the night before the Budget. The Government behave in the most arbitrary, high-handed and arrogant way. Acting arbitrarily is the hallmark of this Government and of the Labour party.
The Financial Secretary is still not here, but I ask her to confirm what the Chancellor said on 2 July, when he stated:
the tax can be paid without any impact on prices, investment, or the quality of service to customers; or, in my view, on employment."—[Official Report, 2 July 1997; Vol. 297, c. 314.]
Can she guarantee that there will be no change to quality of service and no impact on prices, investment or jobs? If there is, would she be happy to accept responsibility for those changes and the implications for her job?
The motive behind the tax is based on an old Labour instinct: the desire to tax any way that it can. When we came to power in 1979, the first question that we asked was how we could create wealth. The first question that Labour asked, which is why it is the first clause, was how it could tax wealth. Conservatives create real jobs from real wealth; Labour creates phoney jobs from taxing wealth.
Back in 1993, Labour spotted the opportunity of the windfall tax. The Chancellor gave a speech at the Institute of Chartered Engineers proposing that privatised utilities be charged what he then called a one-off public dividend on their "excess recession profits". What a thought. It is worth noting that the electricity industry alone in the past two years has raised £4 billion in taxes. The day after his speech, The Times reported:
The amount raised by the windfall tax would be negotiated with the regulators and the utility companies, but would be expected to raise at least £1 billion.
The opportunity to raise £1 billion of lucre was irresistible to a Labour Government, and so it has grown: not £1 billion, £2 billion, £3 billion or £4 billion, but £5 billion. What a bonanza, what a prize. Did the Government consider how those profits had been earned, or the efficiency gains made by the companies since privatisation? No. Did they examine the disastrous way in which the companies had been run before privatisation? No. Is it not interesting that the Labour party does not much like talking about the times when those companies were in state ownership? Who put them into state ownership?
This Labour Government are careless, tax-driven and opportunistic, but the opportunism is highly dangerous. Those companies were privatised in good faith, yet Labour has broken that faith. Shareholders invested on the basis of market rules, but the new Labour Government are riding roughshod through any of those rules.
The state should be party to contracts with business and individuals. As the Financial Times reported in September 1995, in a leader appropriately entitled, "Windfall tax deception":
The windfall tax introduces uncertainty into that contract and as such abuses the power of the state.
How right it was to predict that a future Labour Government would abuse the power of the state.
Let us clear up some of the doubts expressed by Labour Members, who have justified the windfall tax by stating that we did the same in 1981 when we imposed the special bank tax on bank deposits. Our tight monetary policy of that time caused high interest rates, and deposits held on current accounts in 1981 with banks did not pay any interest. The banks made very high profits, as a result of the specific monetary policy then followed.
That is why we raised a levy of 2.5 per cent. on non-interest bearing sterling deposits. That tax applied to a well-defined set of firms, according to a tax base coherently related to the reasons given for its introduction. It was introduced at the same time as when the banks were making those profits, and not years later.
In summary, the windfall tax introduced in clause 1 is wholly iniquitous. It has no foundation and no proper precedent; it is inefficient; and it is motivated by Labour's old desire to tax rather than to create any wealth.

Mr. Stevenson: The hon. Gentleman has referred to how much profit was made and how much tax was paid. Would he care to comment on the fact that, since privatisation, Severn Trent Water has not paid a single penny in mainstream corporation tax?

Mr. Woodward: I would be more than happy to comment on that. One must look at the successes of the water companies since privatisation. [Interruption.] It is interesting to note that Labour Members are not interested in the opportunities created by privatisation. What is really interesting about those hon. Members is that they cannot bear to hear about success. The only thing they want to hear about is how they can tax, how they can screw money out of companies until the pips squeak. In the past, they went for individuals; now they are going for companies.
Those hon. Members will sadly discover in the years to come that, at the end of the day, there is no such thing as hitting companies with tax. It is individuals who will be caught by that, and it is those people who will come back in a few years time to haunt the Labour Government.

Lorna Fitzsimons: I find it absolutely amazing to hear the hon. Member for Witney (Mr. Woodward) try to give us a basic lesson in economics and economic literacy. That makes me think about some young people I have spoken to about the potential offered to them by the windfall tax. The words used so passionately by the hon. Gentleman about that tax being not fair sound like those of the playground.
The hon. Gentleman may talk about equity and sustainability, but consider the economic literacy espoused by your Government in past 18 years and the human wastage of unemployment. In my constituency, 34 per cent. of under-25-year-olds are unemployed and a hefty number of them, more than 600, are long-term

unemployed. I challenge the hon. Gentleman to come to Rochdale to give those young people a lecture about economic literacy.
You have talked yet again very eloquently about taxation.

The First Deputy Chairman: Order. I should remind the hon. Lady that she should not use the term "you", which refers to the Chair.

Lorna Fitzsimons: I beg your pardon, Mr. Martin. As a new Member, I sometimes get carried away.
On taxation, surely the hon. Gentleman's memory is not so short-term, that he has forgotten his Government's record. In their final five years of office, they raised taxes 22 times, despite all their pledges about VAT. Therefore, I hope that the hon. Gentleman will forgive me if I or my constituents take no lectures from Conservatives about taxation.
As for the windfall tax, the shadow Chancellor's concern for pensioners would mean a lot more to the pensioners of Rochdale if he had not been a member of the Government who back-tracked on the imposition of VAT on fuel. If that Government cared so much about pensioners—

Mr. Lilley: Is the hon. Lady therefore arguing that her Government should give the same extra support to pensioners to cover the cost of the windfall tax when it is fed through to their bills as we gave to help pensioners when VAT was imposed on fuel? Does she agree with the Economic Secretary that the net effect of that extra help to pensioners was to make them—and I use her words—"better off' than if there had been no VAT increase?

Lorna Fitzsimons: I worked in the utility sector before my election to the House. I refute utterly what the right hon. Gentleman says about the impact of the windfall tax being passed directly to consumers. Anyone who has worked in the utilities is aware of the difference between the rhetoric of the election campaign and the reality. The regulators have already made it clear in their pricing reviews that that cost will not be passed on to consumers. That pledge has been echoed by the company chairmen and their boards. Our proposal was well-trailed policy, which we advertised. We were honest about it before the general election and allowed the markets to equate our policy with the studies conducted by analysts. We eventually put that proposal to the people.
I refute utterly the claim that the cost of the windfall tax will be passed on to the consumers. The Opposition have since professed, after the election, that they care greatly for the people, but one of the principal reasons for their defeat was that, after 18 years, the people of this country realised that the Conservatives cared not a jot for them.

Mr. David Heath: I would not dream of giving the hon. Lady a lecture on tax. Does she agree that the people who did the best out of the years of Conservative Government were those who earned the most? Would it not be slightly more equitable for her Government to agree with our policy that those who earn the most, perhaps more than £100,000 a year, should pay a little more to help those who need the most support?

Lorna Fitzsimons: I accept that that intervention was meant well, but I do not think that the effect of Liberal


Democrats' proposal would have been as the hon. Member has described. The flat rate on the expandable penny would have been imposed across the board, albeit on income tax. The point about the windfall tax is that it is a tax on the excess profits of the utilities. It will redistribute that money to the people to whom the hon. Gentleman referred. After 18 years, and after studying the books, we should take every opportunity possible to provide young people—the very people the Conservative Government ignored and denied such opportunity—with a lifetime's chance.

Mr. Stevenson: I am fascinated by the obvious conflict between the views of Conservatives, and possibly the Liberals, and Labour Members. If the windfall tax will be so damaging, can my hon. Friend help me by explaining why American electricity companies and French utility companies are queuing up to buy British utility companies?

Lorna Fitzsimons: If the windfall tax were going to be as damaging as the hon. Member for Grantham and Stamford (Mr. Davies) suggested, people would have divested themselves of the shares and there would have been a downturn in the market. Conservative Members like to think that they are economically literate, but this pantomime debate means nothing to the people in our communities, in the City or in the companies which Conservative Members profess to care about.
It is even more amusing to see Conservatives claiming the people we now represent for their own. The fact is that they had 18 years in which to prove that they cared about pensioners and young people; Conservatives cannot now blame the Labour party for the fact that they squandered all the receipts from oil and gas and from the privatisations.
The Conservatives, who lay claim to economic literacy and competence, were responsible for the two worst recessions this country has ever known, yet they lecture us on the subject of economics, and they make speeches full of parliamentary gimmicks. If the windfall tax, on the other hand, were merely a gimmick, all the agencies and people at grass roots level who are so enthusiastic about it would not be so energised by the possibilities that it opens up to them—possibilities of enacting policies for which they have been lobbying and about which they have been dreaming for the past 18 years. As a result of this initiative, people are coming together in partnerships for action.
The challenge is to create sustainable opportunities for young people. I understand the Liberal Democrats' concern to ensure that that is a sustainable opportunity, and I shall take at face value their worries about short-termism. We Members of Parliament must act as ambassadors in our constituencies, ensuring that the money is used to best effect. This one-off injection of resources for much-needed programmes must be used in a way that makes it sustainable.
There is a lot of rhetoric about the transfer of skills; with the much-needed revenue from the windfall tax, we are in a position to give it meaning. We can prepare young people and lone mothers for the world of work. Whereas they used not to benefit from training opportunities, they

will now be given skills matched to the needs of manufacturing industry. Many manufacturers in Rochdale say that they have a skills gap, not at the bottom but in the middle posts, for which they cannot recruit the right people. The jobs exist; now we need to give young people the skills to take up those jobs and make them lasting.
I have welcomed the windfall tax and I continue to welcome it. It is one reason why 1 May was so historic a victory. The shareholders and pensioners whom Conservative Members claim will be so damaged by the tax voted in a Labour Government, knowing full well that the windfall tax, our advertised policy, would follow. Those people want fairness, equity and sustainability in our economy. They want opportunities for the young. Pensioners feel great sorrow about the lack of opportunities for the young people of today. People with pension plans or shares in those companies can see the benefits of the windfall tax, and they welcome it.
There is no division between pensioners and young people over this matter. Many young people have no work at all—they can hardly afford to hold shares. In constituencies like mine, there is no division over the windfall tax. On the contrary, there is a unity of aspiration. People voted for a Government who would look for solutions. Sometimes those solutions involve imaginative but hard decisions.
I ask hon. Members of all parties to join us, after this pantomime debate is over, in the work that is to be done. [Interruption.] I call this a pantomime debate because some of the speeches made today have been pure pantomime—

Mr. Lilley: indicated dissent.

Lorna Fitzsimons: Well, the Chamber has certainly resembled an amateur dramatics workshop at times.
No matter which party we belong to, we all have a moral responsibility to make sure that young people are given good working opportunities. Regardless of the rhetoric used by Conservative Members in the debate, I encourage them all to go as ambassadors to their communities and to ensure that the programmes resulting from the windfall tax are sustainable and practical. Given this one-off golden chance, we are all duty bound to put it to good use in the service of those 250,000 young people.

Mr. Lilley: This has been a brief but genuinely educational debate—educational for the Labour party, which has been informed of a few principles of economic literacy and of the real argument against this tax. It has been educational for us, too, as we have heard revealed the true motives behind the tax: Labour's desire to wreak delayed vengeance on the privatisation process and to attack success.
Three main issues have cropped up today. The first concerns who will ultimately pay for the tax. The second concerns whether the tax is right in principle: does it set a bad precedent, and is it not wholly irrational? Thirdly, the fact remains that it constitutes a rearguard attack on privatisation.
It has been said that to tax and be loved is given to no man, but the Chancellor clearly thought that he had found a way of doing both. Someone will have to pay in the end, though. It is deceitful to pretend otherwise. It is our—initially not terribly popular—duty to point out that


truth, and to ask again: who will pay? It was Lenin who said that the whole essence of politics concerns who will pay and who will gain. The same applies here. We expect from the Minister an explanation of who he thinks will ultimately pay. Will it be some mythical, non-existent entity? No; we know from the Minister's own advisers that individuals have to pay in the end—so he must tell us who they are. We know that, if the tax is passed on to households, the average cost will approach £300. If it hits pension funds—because it is not allowed to be passed on in higher costs—it is the pensioners of today and tomorrow who will have to pay.
It is no good saying that the share prices have risen somewhat since the Budget. The simple fact is that share prices and dividends would be higher without the tax than they are with it.
Secondly, there is the issue of principle. Retrospection is wrong in principle, as my hon. Friend the Member for Grantham and Stamford (Mr. Davies) eloquently argued. The reason is that retrospective taxes cannot be planned for. If Governments come along after the event and take away money that has been earned and deployed without the knowledge that a tax was going to be imposed, planning becomes impossible.
The only possible exception is when an unanticipated tax is applied to unanticipated profits. That, in effect, is what happened in 1981, when a tax was applied to a profit arising at that time out of the actions of the Government, before people had time to spend or deploy the profit in another way.
Clearly, the longer the Government go back, the more damaging retrospective taxes are. The windfall tax goes back more than a decade; it is frighteningly bad in principle, and sets a dangerous precedent. The windfall tax will undoubtedly reduce the revenues from future privatisations. Anyone buying shares in future issues will think that the Government may well impose a high tax if the company from which he is buying does well, as he hopes it will.
The process is irrational: it is a temporary tax to finance a permanent need. There will therefore be a temptation to make the tax permanent. If, as the Chancellor says, the tax will genuinely not affect customers, investment, jobs and pension funds, why are the Government proposing that it should be temporary? Why are they not proposing that it should permanently meet the costs of their continuing programmes to help young people into work, for which—as everyone who has contributed to the debate has accepted—there is bound to be a continuing need?
Today's debate has helped to reveal the real motivation of many Labour Members: to carry out a rearguard attack on the privatisation process. The hon. Member for Workington (Mr. Campbell-Savours), who is not currently in the Chamber, admitted that he was wrong about the benefits of privatisation, but said that he wanted to tax those who were right about them. He wanted to tax those who had invested in privatised companies in the expectation—which turned out to be correct—that privatisation would bring about a large increase in the efficiency and profitability of those companies.
One benefit of privatisation has been the generation of extra tax revenues. Before the privatisation programme started, the nationalised companies were losing £50 million a week of taxpayers' money. Since privatisation, those companies have been paying

£60 million a week in corporation tax. The taxpayer has rightly and properly benefited from that success, and we should all welcome that. It seems irrational to suppose that they should pay a double dose of tax for that success.
The principal argument for the tax has been that the shares were undervalued at the time of issue. I was a humble and junior Minister at the time, but I can say from my experience in the Treasury that we wanted and needed every penny that we could get of the revenues from the privatisations of those companies. We certainly did not deliberately let them go at a price significantly below their market value. We took professional advice from officials within the Treasury and we took the best professional advice that money—a lot of money—can buy in the City. There was a range of opinions: in the only privatisation in which I was involved, I argued for a higher share price than the officials advised. But to suggest that there was a difference of 100 per cent. between the real value and the price set is nonsense.
The value could be set only on the basis of past experience. We did not know the future; we did not have perfect foresight, but had to relate the price to past profits. It would be logical to relate the relative undervaluation—if there is one—of the price at issue to some multiple of past profits, but not future profits. It is the very success of the privatisations—the fact that they exceeded our expectations—that created bigger profits.
What about Jaguar? I cannot remember whether the Paymaster General was around at the time of its flotation. Was he around at that time? Was he involved in it? Was that flotation underpriced? Did it sell at a premium? Did the Paymaster General benefit? Should he pay us a sort of voluntary windfall? Was the price a sign that the management had deliberately undervalued the company for some extraordinary reason?
BP was the first privatisation; it was started by the previous Labour Government at the behest of the International Monetary Fund. A majority of the shares were held by the Government, who sold some. A profit was made and the shares are now at a much higher price than they were when they were sold off by the previous Labour Government. Indeed, some Labour Ministers have holdings in the company. Based on the principle that present holdings should be taxed for the gains previously made by people who now have nothing to do with the company, presumably a large tax should be paid on those holdings. It is lucky that we know about those holdings—although we nearly did not.
The debate has been extremely helpful in revealing that the tax is without logic or foundation. It sets a dangerous precedent, and is an appallingly long retrospective tax. We urge the Government to think again about it.
Today's debate is not about the merits or otherwise of the welfare-to-work programme, which does not appear in the clause. We have debated the merits of that programme on previous occasions. If the programme is valid, it should be financed by proper, not retrospective taxation; it should be financed by continuing, not one-off taxes that threaten gradually to become permanent; and it should be financed by taxes that allow everyone to see who ultimately pays. We know who will pay: households and pensioners will pay the cost of Labour's windfall tax.

Mr. Geoffrey Robinson: This debate has been about anything but clause 1. The shadow Chancellor, the right hon. Member for Hitchin and Harpenden (Mr. Lilley),


must realise that he has not mentioned any aspects of clause 1. The debate has been illuminating for the right hon. Gentleman, as we have been able to explain to him the tax profit base, how it is calculated, the price-to-earnings ratio, and why we have taken the first four years. The right hon. Gentleman did not express a view on any of those matters, although he can see the logic of the tax.
The tax is logical. We are able to define the criteria that determine which companies will be affected. We have been able to use a ratio that is well established in the financial markets. The right hon. Gentleman and other Conservative Members know from their experience in previous occupations that it is clearly not an arbitrary tax. It consistently taxes all the companies that fall under the definition and treats them consistently in every respect.
The tax is not arbitrary, because we have focused on a period of four years and measured the excess profits over that period. That is why, throughout the debate, Conservative Members have had to re-hash the arguments that they advanced on Second Reading. We have not heard any discussion among Conservative Members about the basis of the tax. They have not attacked it on a technical, legal, or even financial level. All we hear are the same old adjectives trotted out.

Mr. Nick Gibb: Will the Paymaster General give way?

Mr. Robinson: It is interesting that the hon. Gentleman is trying to intervene now, when just 14 minutes remain and I have many hon. Members to respond to. He was given an opportunity to contribute by you, Mr. Martin, as the last Labour Member finished speaking, but he was so hesitant and tentative that he was overlooked. I shall give him an opportunity to contribute now.

Mr. Gibb: As the windfall tax is unlikely to be a creditable tax for United States double tax relief purposes because it is a tax on capital rather than income, and as the US is such a large investor in the United Kingdom, particularly in the utilities sector, will the Paymaster General tell us what discussions the Government have had with the US Government to ensure that the US Government do not impose a retaliatory tax on UK investors in the US?

Mr. Robinson: As the hon. Gentleman well knows, that question is one for the US authorities; it is not for us to intervene in any decision that they reach on that matter. As the hon. Gentleman is so concerned about the attitude of American companies to our utilities—a point raised by the hon. Member for Grantham and Stamford (Mr. Davies), who has just returned to the Chamber—he will be interested to know that, far from uncertainty being created in the marketplace, shares have risen, as the shadow Chancellor readily conceded. In fact, the American PacifiCorp bid for the Energy Group, which includes Eastern Electricity, has been tabled and still remains active at £3.6 billion.
That is another sign of the markets' confidence in the Labour Government. We have taken steps across the board to ensure that, unlike the previous Government, we are not side-tracked by short-termism. Everything that we have done since taking office—

Mr. Quentin Davies: Will the hon. Gentleman give way?

Mr. Robinson: I shall in a moment, but I am speaking about some of the points that the hon. Gentleman made. That bid is there. There could be no better sign of a continuing confident commitment by American companies to the British utilities market than that. Perhaps—

Mr. Davies: Will the hon. Gentleman give way?

Mr. Robinson: I shall give way in a moment. When the hon. Gentleman intervenes, perhaps he will tell us how that betrays a lack of confidence.
What we have done with the Bank of England, what we have done to set up a single regulatory authority, our moves on corporation tax and our action on ACT were all carried out with one aim in mind—to create a medium to long-term climate for growth and success.

Mr. Davies: Does not the hon. Gentleman realise that, had it not been for the windfall tax, utility companies would be worth more, so the size of the investment that would have been made in that takeover would have been correspondingly higher?

Mr. Robinson: The hon. Gentleman may have set his sights very high. A 7 per cent. increase in share values since 2 July is good enough for me, and long may it continue. I know that all the companies that find themselves subject to the tax are anxious to get the tax behind them, so that they may get on with running their business.

Mr. Peter Brooke: In the months leading up the Budget, the Government took ready credit for the fact that the markets were discounting the effect of the tax, and now they take credit for the fact that the markets have risen since the tax was announced. Is it reasonable to take credit for both?

Mr. Robinson: I can assure the right hon. Gentleman that we shall take credit wherever we can—and do our best to take it even if we should not.
I have long ago given up trying to read markets with any reliability. They are irrational—much more irrational than this tax. However, we were told by many market commentators, and by Conservative Members, that share prices would collapse after the Budget: that they would collapse in the utilities sector because of the windfall tax and that they would collapse in the entire market because of the decisions taken on tax dividends and ACT. Neither happened, and I am sure that all hon. Members are pleased at the continuing vote of confidence in the Government and the future by the stock market and the financial institutions.
When the hon. Member for Gordon (Mr. Bruce) reflects on the date problem, he will realise that it is not really a problem. One must select a point at which the benefits are


defined and use that as a cut-off. That is a pure piece of parliamentary draftsmanship. I assure him that there is no substantive point there.
The hon. Gentleman also sought two assurances, which I am pleased to give him. One concerns the age-old point, which we have heard at every Question Time and throughout the Second Reading debate and which we continue to hear, presumably because Opposition Members have nothing else to say. Yes, it is a one-off tax, as has been said repeatedly.
The hon. Gentleman was also anxious that we might have given any of the companies that might be subject to the tax assurances that have not been made public. That could not have arisen, because Ministers did not meet the companies. I personally met the regulators and that subject did not come into our discussions, although, as I shall repeat shortly, they were very clear in their minds about what they had to say, and it was on their advice that my right hon. Friend the Chancellor made the statements he did, which I reiterate today. Ministers had no meetings with the companies, so that point does not arise. Representatives of the companies were seen by officials, and I assure the hon. Gentleman that no such commitment would have been made by any official, either.
Many other Labour Members contributed to the debate very effectively, but the Opposition said nothing new. My hon. Friend the Member for Workington (Mr. Campbell-Savours) spoke movingly about the prospects for his constituency. We know that in Workington there is an especially severe problem of second and perhaps third-generation households without a wage earner, so we have the prospect of successive generations of unemployment in single families. My hon. Friend had the honesty to say that he had been converted to the principles of privatisation, but—I share this with him—he said that he had not been convinced of, or converted to, the principles of undervaluing and underselling our national assets.
If we are to restore people's respect for privatisation, it is essential that the tax proceeds. It was clearly stated in our manifesto that we would introduce such a tax; indeed, it was clearly stated four years ago. Shareholders have had every opportunity since then to decide whether to keep the shares. In that time, the profile of independent investing companies will have changed, as a result of their decision to sell, as a result of takeovers or for any other reason. We are well aware that today's shareholders are different from the shareholders soon after privatisation, but that fact does not enter the argument.
The hon. Member for East Yorkshire (Mr. Townend), who is not with us now, referred to East Midlands Electricity and Yorkshire Electricity. We are not trying to favour one company against another. It is not a question of trying to be fair to some and unfair to others. Profits that were made in those four years and profits that were made against the price at which the companies were floated, represent what we judge to be excess profit, and if that is higher for East Midlands than for Yorkshire, I am afraid that that is how it is. The shareholders of the

company that has done better will have shared in that success. We are now rightly trying to get back some of that success for all taxpayers, who have not benefited from it.
My hon. Friend the Member for Dudley, North (Mr. Cranston) concisely and accurately described how the tax is intended to work and why it will work on that basis. The problem with the Liberal Democrats, on the other hand—this applies as much to the hon. Member for Gordon as to the hon. Member for Portsmouth, South (Mr. Hancock)—is that they cannot make up their minds. They will the end, but they cannot bring themselves to will the means. That is the problem. Nothing in their manifesto would come near to raising sums of the magnitude of those that this tax—presented to and voted for by the electorate—will raise. The Liberal Democrats cannot say yes to the programmes but no to the tax. That is their usual position—standing on their heads.
My hon. Friend the Member for Stoke-on-Trent, South (Mr. Stevenson) accurately calculated the likely excess profits to be about £6 billion, which he said had been calculated on a modest basis. I have already explained to the Committee that the basis of the tax—setting the price-to-earnings ratio at nine, slightly below the lowest sectoral average—shows a Government who are trying to be reasonable and fair in all respects.
The question of unfairness and uncertainty was brought up again by the hon. Member for Witney (Mr. Woodward), and it seems ironic that unfairness and uncertainty can be brought to bear when the clearest possible criteria and the clearest possible objective basis for the tax have been established, have been unchallenged by the Opposition and have been applied impartially to the companies that meet the criteria that we have established.
I regret to say that, as the first debate in a massive assault on our flagship programme, this debate has been a weak re-hash of arguments previously made by the Opposition. There have been no reasoned amendments. Opposition Members have said nothing today that they have not said to even less effect previously.
In the Government's view, this is a major piece of legislation. It is a major tax, it is a one-off tax and we have a mandate for it. It was in our manifesto and the electorate voted for it.
This Government will keep their promise to the young and the long-term unemployed. We shall keep our promise to rebuild schools. Unlike the previous Government, we shall not break our promises. I therefore urge the Committee to accept clause 1.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 338, Noes 188.

Division No. 56]
[6.58 pm


AYES


Abbott, Ms Diane
Austin, John


Adams, Mrs Irene (Paisley N)
Banks, Tony


Ainger, Nick
Barnes, Harry


Ainsworth, Robert (Cov'try NE)
Barron, Kevin


Allen, Graham (Nottingham N)
Battle, John


Anderson, Donald (Swansea E)
Bayley, Hugh


Anderson, Janet (Rossendale)
Beard, Nigel


Armstrong, Ms Hilary
Beckett, Rt Hon Mrs Margaret


Ashton, Joe
Bell, Stuart (Middlesbrough)


Atkins, Charlotte
Benn, Rt Hon Tony






Bennett, Andrew F
Drew, David


Benton, Joe
Drown, Ms Julia


Best, Harold
Dunwoody, Mrs Gwyneth


Blackman, Liz
Eagle, Angela (Wallasey)


Blears, Ms Hazel
Efford, Clive


Boateng, Paul
Ellman, Ms Louise


Borrow, David
Ennis, Jeff


Bradley, Keith (Withington)
Etherington, Bill


Bradshaw, Ben
Fatchett, Derek


Brinton, Mrs Helen
Fisher, Mark


Brown, Rt Hon Nick (Newcastle E)
Fitzpatrick, Jim


Brown, Russell (Dumfries)
Fitzsimons, Lorna


Browne, Desmond (Kilmarnock)
Flynn, Paul


Buck, Ms Karen
Follett, Barbara


Burden, Richard
Foster, Rt Hon Derek


Burgon, Colin
Foster, Michael Jabez (Hastings)


Butler, Christine
Foster, Michael John (Worcester)


Byers, Stephen
Foulkes, George


Caborn, Richard
Fyfe, Maria


Campbell, Alan (Tynemouth)
Galbraith, Sam


Campbell, Mrs Anne (C'bridge)
Galloway, George


Campbell, Ronnie (Blyth V)
Gapes, Mike


Campbell-Savours, Dale
Gardiner, Barry


Canavan, Dennis
George, Bruce (Walsall S)


Cann, Jamie
Gerrard, Neil


Caplin, Ivor
Gibson, Dr Ian


Casale, Roger
Gilroy, Mrs Linda


Caton, Martin
Godman, Dr Norman A


Cawsey, Ian
Godsiff, Roger


Chapman, Ben (Wirral S)
Goggins, Paul


Chaytor, David
Golding, Mrs Llin


Chisholm, Malcolm
Gordon, Mrs Eileen


Clapham, Michael
Graham, Thomas


Clark, Dr Lynda (Edinburgh Pentlands)
Griffiths, Jane (Reading E)



Griffiths, Nigel (Edinburgh S)


Clark, Paul (Gillingham)
Griffiths, Win (Bridgend)


Clarke, Charles (Norwich S)
Grocott, Bruce


Clarke, Eric (Midlothian)
Grogan, John


Clarke, Rt Hon Tom (Coatbridge)
Gunnell, John


Clarke, Tony (Northampton S)
Hain, Peter


Clelland, David
Hall, Mike (Weaver Vale)


Clwyd, Ann
Hall, Patrick (Bedford)


Coaker, Vernon
Hamilton, Fabian (Leeds NE)


Cohen, Harry
Hanson, David


Colman, Tony (Putney)
Heal, Mrs Sylvia


Cook, Frank (Stockton N)
Healey, John


Cooper, Yvette
Henderson, Ivan (Harwich)


Corbett, Robin
Heppell, John


Corbyn, Jeremy
Hesford, Stephen


Corston, Ms Jean
Hewitt, Ms Patricia


Cousins, Jim
Hill, Keith


Cox, Tom
Hinchliffe, David


Cranston, Ross
Hoey, Kate


Crausby, David
Hood, Jimmy


Cryer, Mrs Ann (Keighley)
Hoon, Geoffrey


Cryer, John (Hornchurch)
Hope, Phil


Cunningham, Jim (Cov'try S)
Hopkins, Kelvin


Dafis, Cynog
Howarth, Alan (Newport E)


Dalyell, Tarn
Howarth, George (Knowsley N)


Darling, Rt Hon Alistair
Hoyle, Lindsay


Darvill, Keith
Hughes, Kevin (Doncaster N)


Davey, Valerie (Bristol W)
Hurst, Alan


Davidson, Ian
Hutton, John


Davies, Rt Hon Denzil (Llanelli)
Iddon, Dr Brian


Davies, Geraint (Croydon C)
Illsley, Eric


Davies, Rt Hon Ron (Caerphilly)
Ingram, Adam


Davis, Terry (B'ham Hodge H)
Jackson, Ms Glenda (Hampstead)


Dawson, Hilton
Jackson, Helen (Hillsborough)


Dean, Mrs Janet
Jamieson, David


Denham, John
Jenkins, Brian (Tamworth)


Dewar, Rt Hon Donald
Jones, Barry (Alyn & Deeside)


Dismore, Andrew
Jones, Ms Fiona (Newark)


Dobson, Rt Hon Frank
Jones, Helen (Warrington N)


Donohoe, Brian H
Jones, leuan Wyn (Ynys Môn)


Doran, Frank
Jones, Ms Jenny (Wolverh'ton SW)


Dowd, Jim






Jones, Dr Lynne (Selly Oak)
Plaskitt, James


Kaufman, Rt Hon Gerald
Pollard, Kerry


Keeble, Ms Sally
Pond, Chris


Keen, Alan (Feltham &Heston)
Pope, Greg


Keen, Mrs Ann (Brentford)
Pound, Stephen


Kennedy, Jane (Wavertree)
Powell, Sir Raymond


Khabra, Piara S
Prentice, Ms Bridget (Lewisham E)


Kidney, David
Prentice, Gordon (Pendle)


Kilfoyle, Peter
Primarolo, Dawn


King, Andy (Rugby & Kenilworth)
Purchase, Ken


King, Ms Oona (Bethnal Green)
Quin, Ms Joyce


Ladyman, Dr Stephen
Quinn, Lawrie (Scarborough)


Lawrence, Ms Jackie
Radice, Giles


Laxton, Bob
Rapson, Syd


Lepper, David
Raynsford, Nick


Leslie, Christopher
Reed, Andrew (Loughborough)


Levitt, Tom
Robinson, Geoffrey (Cov'try NW)


Lewis, Ivan (Bury S)
Roche, Mrs Barbara


Liddell, Mrs Helen
Rogers, Allan


Linton, Martin
Rooker, Jeff


Livingstone, Ken
Rooney, Terry


Lloyd, Tony (Manchester C)
Ross, Ernie (Dundee W)


Lock, David
Rowlands, Ted


Love, Andrew
Roy, Frank


McAllion, John
Ruddock, Ms Joan


McAvoy, Thomas
Russell, Ms Christine (Chester)


McCafferty, Ms Chris
Ryan, Ms Joan


McCartney, Ian (Makerfield)
Savidge, Malcolm


McDonagh, Siobhain
Sawford, Phil


Macdonald, Calum
Sedgemore, Brian


McDonnell, John
Shaw, Jonathan


McIsaac, Shona
Sheerman, Barry


Mackinlay, Andrew
Sheldon, Rt Hon Robert


McNamara, Kevin
Shipley, Ms Debra


McNulty, Tony
Short, Rt Hon Clare


MacShane, Denis
Simpson, Alan (Nottingham S)


Mactaggart, Fiona
Singh, Marsha


McWalter, Tony
Skinner, Dennis


Mahon, Mrs Alice
Smith, Rt Hon Andrew (Oxford E)


Mallaber, Judy
Smith, Angela (Basildon)


Mandelson, Peter
Smith, Rt Hon Chris (Islington S)


Marek, Dr John
Smith, Miss Geraldine (Morecambe & Lunesdale)


Marsden, Gordon (Blackpool S)



Marshall, Jim (Leicester S)
Smith, Jacqui (Redditch)


Maxton, John
Smith, John (Glamorgan)


Meacher, Rt Hon Michael
Smith, Llew (Blaenau Gwent)


Meale, Alan
Snape, Peter


Michael, Alun
Soley, Clive


Michie, Bill (Shef'ld Heeley)
Starkey, Dr Phyllis


Milburn, Alan
Steinberg, Gerry


Miller, Andrew
Stevenson, George


Mitchell, Austin
Stewart, David (Inverness E)


Moffatt, Laura
Stewart, Ian (Eccles)


Moonie, Dr Lewis
Stoate, Dr Howard


Morgan, Ms Julie (Cardiff N)
Stott, Roger


Morgan, Rhodri (Cardiff W)
Strang, Rt Hon Dr Gavin


Morley, Elliot
Stringer, Graham


Morris, Ms Estelle (B'ham Yardley)
Stuart, Ms Gisela (Edgbaston)


Mountford, Kali
Sutcliffe, Gerry


Mudie, George
Taylor, Rt Hon Mrs Ann (Dewsbury)


Mullin, Chris



Murphy, Jim (Eastwood)
Taylor, Ms Dari (Stockton S)


Naysmith, Dr Doug
Thomas, Gareth (Clwyd W)


Norris, Dan
Thomas, Gareth R (Harrow W)


O'Brien, Bill (Normanton)
Timms, Stephen


O'Brien, Mike (N Warks)
Tipping, Paddy


O'Hara, Edward
Todd, Mark


Olner, Bill
Touhig, Don


O'Neill, Martin
Trickett, Jon


Organ, Mrs Diana
Truswell, Paul


Osborne, Mrs Sandra
Turner, Dennis (Wolverh'ton SE)


Pearson, Ian
Turner, Desmond (Kemptown)


Pendry, Tom
Twigg, Derek (Halton)


Perham, Ms Linda
Twigg, Stephen (Enfield)


Pickthall, Colin
Vaz, Keith


Pike, Peter L
Vis, Dr Rudi






Walley, Ms Joan
Wilson, Brian


Ward, Ms Claire
Winnick, David


Watts, David
Winterton, Ms Rosie (Doncaster C)


White, Brian
Wise, Audrey


Whitehead, Dr Alan
Wray James


Wicks, Malcolm
Wright, Dr Tony (Cannock)


Williams, Rt Hon Alan (Swansea W)
Wright, Tony D (Gt Yamouth)



Wyatt, Derek


Williams, Alan W (E Carmarthen)
Tellers for the Ayes:


Williams, Mrs Betty (Conwy)
Mr. Jon Owen Jones and


Wills, Michael
Mr. Clive Betts.




NOES


Ainsworth, Peter (E Surrey)
Fowler, Rt Hon Sir Norman


Allan, Richard (Shef'ld Hallam)
Fox, Dr Liam


Amess, David
Fraser, Christopher


Ancram, Rt Hon Michael
Gale, Roger


Arbuthnot, James
Garnier, Edward


Ashdown, Rt Hon Paddy
George, Andrew (St Ives)


Atkinson, Peter (Hexham)
Gibb, Nick


Baker, Norman
Gill, Christopher


Baldry, Tony
Gillan, Mrs Cheryl


Ballard, Mrs Jackie
Goodlad, Rt Hon Alastair


Beggs, Roy (E Antrim)
Gorman, Mrs Teresa


Bercow, John
Gorrie, Donald


Beresford, Sir Paul
Gray, James


Blunt, Crispin
Green, Damian


Body, Sir Richard
Greenway, John


Boswell, Tim
Grieve, Dominic


Bottomley, Peter (Worthing W)
Hague, Rt Hon William


Bottomley, Rt Hon Mrs Virginia
Hamilton, Rt Hon Sir Archie


Brady, Graham
Hancock, Mike


Brand, Dr Peter
Harris, Dr Evan


Brazier, Julian
Harvey, Nick


Breed, Colin
Hawkins, Nick


Brooke, Rt Hon Peter
Heald, Oliver


Browning, Mrs Angela
Heath, David (Somerton &Frome)


Bruce, Ian (S Dorset)
Heathcoat-Amory, Rt Hon David


Bruce, Malcolm (Gordon)
Heseltine, Rt Hon Michael


Burns, Simon
Hogg, Rt Hon Douglas


Butterfill, John
Horam, John


Cable, Dr Vincent
Howarth, Gerald (Aldershot)


Campbell, Menzies (NE Fife)
Hunter, Andrew


Cash, William
Jack, Rt Hon Michael


Chapman, Sir Sydney (Chipping Barnet)
Jackson, Robert (Wantage)



Jenkin, Bernard (N Essex)


Chidgey, David
Johnson Smith, Rt Hon Sir Geoffrey


Chope, Christopher



Clappison, James
Jones, Nigel (Cheltenham)


Clark, Rt Hon Alan (Kensington)
Keetch, Paul


Clark, Dr Michael (Rayleigh)
Key, Robert


Clarke, Rt Hon Kenneth (Rushcliffe)
King, Rt Hon Tom (Bridgwater)



Kirkbride, Miss Julie


Clifton-Brown, Geoffrey
Kirkwood, Archy


Collins, Tim
Laing, Mrs Eleanor


Colvin, Michael
Leigh, Edward


Cormack, Sir Patrick
Letwin, Oliver


Cotter, Brian
Lewis, Dr Julian (New Forest E)


Cran, James
Lidington, David


Curry, Rt Hon David
Lilley, Rt Hon Peter


Davey, Edward (Kingston)
Livsey, Richard


Davies, Quentin (Grantham)
Lloyd, Rt Hon Sir Peter (Fareham)


Day, Stephen
Loughton, Tim


Dorrell, Rt Hon Stephen
Luff, Peter


Duncan, Alan
Lyell, Rt Hon Sir Nicholas


Duncan Smith, Iain
MacGregor, Rt Hon John


Emery, Rt Hon Sir Peter
MacKay, Andrew


Evans, Nigel
Maclean, Rt Hon David


Faber, David
McLoughlin, Patrick


Fabricant, Michael
Madel, Sir David


Fallon, Michael
Major, Rt Hon John


Fearn, Ronnie
Malins, Humfrey


Flight, Howard
Maples, John


Forth, Rt Hon Eric
Maude, Rt Hon Francis


Foster, Don (Bath)
Mawhinney, Rt Hon Dr Brian





May, Mrs Theresa
Stunell, Andrew


Merchant, Piers
Swayne, Desmond


Michie, Mrs Ray (Argyll & Bute)
Syms, Robert


Moore, Michael
Tapsell, Sir Peter


Moss, Malcolm
Taylor, Ian (Esher & Walton)


Nicholls, Patrick
Taylor, John M (Solihull)


Norman, Archie
Taylor, Matthew (Truro)


Oaten, Mark
Taylor, Sir Teddy


Öpik, Lembit
Temple-Morris, Peter


Page, Richard
Tonge, Dr Jenny


Paice, James
Townend, John


Paterson, Owen
Tredinnick, David


Prior, David
Trend, Michael


Redwood, Rt Hon John
Tyler, Paul


Rendel, David
Tyrie, Andrew


Robathan, Andrew
Viggers, Peter


Robertson, Laurence (Tewk'b'ry)
Wallace, James


Roe, Mrs Marion (Broxbourne)
Walter, Robert


Ross, William (E Lond'y)
Wardle, Charles


Rowe, Andrew (Faversham)
Waterson, Nigel


Ruffley, David
Webb, Professor Steve


Russell, Bob (Colchester)
Wells, Bowen


St Aubyn, Nick
Whitney, Sir Raymond


Sanders, Adrian
Whittingdale, John


Sayeed, Jonathan
Widdecombe, Rt Hon Miss Ann


Shephard, Rt Hon Mrs Gillian
Willetts, David



Wills, Phil


Shepherd, Richard (Aldridge)
Wilshire, David


Simpson, Keith (Mid-Norfolk)
Winterton, Nicholas (Macclesfield)


Smith, Sir Robert (WAb'd'ns)
Woodward, Shaun


Spelman, Mrs Caroline
Yeo, Tim


Spicer, Sir Michael
Young, Rt Hon Sir George


Spring, Richard



Stanley, Rt Hon Sir John
Tellers for the Noes:


Steen, Anthony
Mr. Richard Ottaway and


Streeter, Gary
Sir David Madel.

Question accordingly agreed to.

Clause I ordered to stand part of the Bill.

Clause 15

MORTGAGE INTEREST PAYMENTS

Mr. Tim Boswell: I beg to move amendment No. 11, in page 10, line 15, at end insert—
'(4) This section shall not come into effect until the average mortgage rate is at or below the rate prevailing on 1st May 1997.'
The effect of the amendment is relatively simple. It would prevent the Chancellor's intended reduction in mortgage interest tax relief until the general tenor of interest rates returned to the level applicable on 1 May 1997—a date which, I imagine, is etched on the hearts of hon. Members on both sides of the Committee.
I shall return to the amendment, but first it may be helpful for the Committee if I give a little historical context to the issue of mortgage interest tax relief.
I suspect that, when discussing the subject, many of us are a little eclectic in our use of terms. I am trying to use the stricter term "mortgage interest tax relief', if only to remind the Committee that it is a tax relief given against taxable income on account of mortgage interest, although even that is not a perfect concept now. It is often described as MIRAS, no doubt because the acronym slips more easily off the tongue. That stands for mortgage interest relief at source, which was introduced some years ago. It is the same thing, but reflects the way in which the relief is now payable.
Subject to the indulgence that we may flit from one term to the other, even inadvertently, I shall say a word or two about the concept, how we got to where we are today and what we should do about that.
The original concept, like most things in the income tax system, almost all the way back to Pitt, was a logical one. Income was calculated taking into account all items that were taxable under various schedules, including at that time an implied rental equivalent for any house occupied by an owner-occupier under schedule A. Against that taxable income, the taxpayer was entitled to set off all relevant outgoings. From time immemorial, one of those outgoings was the deduction of interest on account of loans—not specifically tied to house purchase, at that stage.
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Those of us with fairly long memories—in my teenage years, I used to hear these concepts bandied about, even if I did not fully understand them—will remember the sustained pressure in the 1950s for the abolition of schedule A as it affected the owner-occupier. That provision was abolished by a Conservative Government, I think under Mr. Selwyn Lloyd, as a move explicitly favouring home owners. Ever since then, a person who has a discretionary option to invest, say, £200,000 of his money in a house to live in, as against renting a house, or to put the money into shares, bonds or other securities to generate an income with which to pay that rent, is usually favoured in tax terms by being an owner-occupier.
That change came about after a sustained campaign with a great deal of public feeling. It was, I believe, a reflection of the good intentions of the Conservative Government of the day to support owner-occupiers. It was the right thing to do, but it broke the tax symmetry, as it were.
Characteristically, on the other side of the argument for the taxpayer, the succeeding Labour Government in the late 1960s cut off interest on loans—not on house purchase, but on all loans other than for housing. We had moved from a perfect and tidy concept to one that favoured home owners and disfavoured other kinds of borrowing.
Thereafter, the regime was more stable, although along the way a restriction was imposed on the total amount of borrowing eligible for mortgage interest tax relief. Probably as a reflection of the relative stability of that period in the 1970s and 1980s, the importance of mortgage interest tax relief grew. The total cost to the taxpayer, or tax expenditure, rose. In 1991, it peaked at £8.9 billion per annum, which was a substantial cost.
That cost was achieved even though the eligible loans were restricted to £30,000 from 1984 onwards. That has not changed, and will be the subject of a clause to be debated in Standing Committee. I will not talk at length, except indirectly or incidentally, about the limit.
Since 1990–91—the peak of tax expenditure—interest rates in the United Kingdom have fallen sharply. At 1 May 1997, they were at their lowest historic level for more than 30 years. That was an appropriate time for a Conservative Chancellor—who, like all Chancellors, had to set tax priorities—to introduce a number of stepped changes which reduced the level of the relief, alongside the automatic reduction that was taking place on account of the reduction in interest rates. The changes involved the removal of higher rate relief from 1991–92 and the restriction of relief to 20 per cent., and subsequently to 15 per cent.
Anticipating the Financial Secretary's speech, I am sure that she and those on the Treasury Bench will try to justify the Government's changes by implying that they are a continuation and flow from other recent changes. However, in view of the somewhat overblown claims made about the Budget—

Mr. Campbell-Savours: When the Conservative Government took a similar decision some years ago, did they have interest rates in mind? Is not the policy they pursued then exactly the reverse of that which the Conservatives are pushing in the amendment?

Mr. Boswell: There is a huge distinction, to which I was about to refer. The difference is that interest rates were on their way down when the Conservative Government took that decision. Sadly, they are now on their way up. That is one reason why we are seeking to impose on the Government the restrictions that are set out in the amendment. If, as the Chancellor and the Financial Secretary have suggested, this is a people's Budget, we must ask why the people will pay for it.
I started my speech from an historical perspective, to which I shall now return. I cannot better the conclusion reached by the Council of Mortgage Lenders in its recent comprehensive briefing. It said that it is clear that mortgage interest tax relief has moved from being
a highly regressive form of relief which benefited high income home owners most to being a relatively progressive form of relief giving most assistance to home owners with a relatively small mortgage and on lower incomes.
I point out that a series of Conservative Chancellors introduced changes and continued to maintain the £30,000 restriction which, together with other measures such as the right to buy, brought about that social revolution. The Conservatives can reasonably claim to have pioneered the encouragement of home ownership from the 1960s.
The Council of Mortgage Lenders gives a further analysis of the pattern of mortgage lending now—and not as it would have been in the 197,0s under Governments of both colours. It examines the size of income of the mortgagor—the person who borrows; as I am not a lawyer, I tend to get it wrong if I do not think about it—and the average size of the mortgage based on the latest convenient revenue figures for 1994–95.

Mr. Campbell-Savours: I have checked the statistics. The hon. Gentleman said that, when the Conservative Government introduced the measure in 1995, interest rates were going down. According to Library research paper 9784, interest rates were increasing at that time. How does that information fit with the hon. Gentleman's amendment?

Mr. Boswell: If he were to take one month with another, the hon. Gentleman would find that interest rates tended to be down dramatically during that period. I am sure that he would agree that the solution figure achieved on 1 May 1997 was the lowest historic rate for more than 30 years.
Returning to mortgage distribution under the recent arrangements, it is interesting to note that, once people reach an income level of about £10,000 a year—

Mr. Campbell-Savours: I must press the hon. Gentleman on this important point. The Conservative


Government announced the change in 1993, when, according to the Library, interest rates were 5.5 per cent. When the measure was introduced in 1995, interest rates were 6.75 per cent. In other words, the measure was introduced when interest rates were increasing, yet the hon. Gentleman pleads that we defer until interest rates go down.

Mr. Boswell: I draw the hon. Gentleman's attention to the fact—I invite him to check the figures for himself in the Library—that interest rates reached an historic peak on 15 September 1992. That date may be in the hon. Gentleman's mind. The tendency thereafter was for the rates to be reduced, which has produced conclusively the lowest historic rate for more than 30 years. Interest rates were down during that period. 1 strongly advise the hon. Gentleman—to whom I have given way three times on this point—to consider the distribution of incomes and mortgages.
The broad and level pattern of mortgages is established roughly at an income level of £10,000 per annum. It is well to remind the House that there are about 1.5 million beneficiaries of mortgage interest relief below that level, 1 million of whom are not taxpayers. Above the £10,000 figure, the curve rises relatively smoothly to a lower income limit of about £40,000 a year. The curve for the size of mortgage is broadly stable along that line. Therefore, given that there is a £30,000 limit, the amount of relief is very stable.
Another way of putting it is that, of 10.4 million home buyers, 45 per cent. had household income not exceeding £20,000 a year, yet they received 39 per cent. of the value of the mortgage interest tax relief; so the situation is pretty balanced. This analysis, suggesting an even distribution of the benefits of mortgage interest tax relief to home owners, is broadly confirmed by the Institute for Fiscal Studies.
It is worth adding that benefit relief is evenly spread regionally. In Wales, where house prices are lower, two thirds of the relief and 40 per cent. of the relief in Scotland go to those with mortgages under £30,000. The broad pattern of relief according to incomes and population is fairly stable across the country. Therefore, in its current form, the benefit is not a fat cats' or a home counties' benefit. Although the figures diverge in the south-east of England, that reflects the high cost of housing as a percentage of total disposable income. Any change in the level of tax relief makes the least proportionate difference to people in the south of England because they pay more anyway.
The scene, therefore, is of a widely spread benefit which is available to 10 million households all over the country and spread evenly among all income groups and regions. So what has happened since 1 May? This matter obviously concerns the hon. Member for Workington (Mr. Campbell-Savours). First and foremost, there have been three successive quarter point rises in interest rates—the last occurred only last week. Now that the Chancellor has remitted control of monetary policy to the Bank of England, there may be more increases to come.
Home owners need interest rate increases like a hole in the head. The cost of those interest rate rises alone—remembering that they are paid for by the great bulk of the 10 million householders—is £21.85 a month on average. We might object if the Chancellor tried to portray that increase as a law of nature. Nevertheless, it is created by the operation of interest rates.
What does the Chancellor do? He makes matters worse by imposing a staged cut in tax relief, which takes out another £8.95 a month for those mortgage holders who benefit from the full £30,000 relief. That makes a total loss to the individual householder of about £30 a month as a result of Labour's double whammy. There is the whammy of mortgage rate changes and that of the withdrawal, or partial withdrawal, of mortgage interest benefit.
The Labour Government claim that they are concerned to listen to others. That being so, surely they should have listened to those like the deputy director general of the Council of Mortgage Lenders, Peter Williams, who, commenting on the issue of retaining mortgage interest relief, said:
The Government should understand that further cuts in mortgage interest tax relief do not represent a zero-cost option. I11-considered actions on MITR, based on the short-term expediency of releasing funds for other programme priorities, are likely to damage home owners and the housing market indiscriminately, and to call into question Labour's commitment to sustainable home ownership.
Mr. Williams added:
The CML is keen to work with the Government on a range of issues affecting the housing and mortgage markets, and is prepared to have discussions on the future of mortgage interest tax relief.
It is clear, however, that the Chancellor's proposals are entirely within the framework of the policies that I have explained to the Committee, with the consequences that I have set out.
7.30 pm
I pause on three points of my own in the analysis. First—in this instance, the Chancellor and his Treasury team have been entirely consistent—a move has been slipped into the Budget that is completely in accord with the message of the Budget, which is, "Clap today and pay tomorrow." It is inevitable that the costs of the proposals have not yet fully sunk in, and that is because most people receive an annual statement of their mortgage liability in the spring. Their repayment period is adjusted accordingly. That does not apply to every mortgage, but there are many people who do not yet know what has hit them.
Secondly, Labour is claiming, and the Chancellor is calculating and betting on, a benefit of £950 million in a full year. The Chancellor should reflect on the implications of the three hikes in interest rates on the cost of MIRAS itself. By increasing the interest rate three times, there has been a rise in the cost of MIRAS. My personal calculation is that it has amounted to a loss of £225 million to the Exchequer. The Chancellor has already given away about a quarter of the benefit that he is claiming.
Thirdly, we have not taken into account all the changes that will bear on the ordinary person or ordinary householder, to use the Government's terms. In addition, there is the indirect impact of the changes in advance corporation tax on pensions and the need to contribute to pensions. There is also an indirect impact on local authorities and council tax. In some instances, there will be an impact on stamp duty. There are other changes that will take place indirectly in the second round.

Mr. Ivor Caplin: I apologise for missing the start of your speech. You raised on three occasions,


I think, since I have been in my place, the question of three interest rate rises since 1 May. Would you not accept—

The Second Deputy Chairman of Ways and Means (Mr. Michael Lord): Order. "You" and "your" are not words that the hon. Gentleman may use, because they refer to the Chair. The Chair is not involved in these matters.

Mr. Caplin: I am sorry, Mr. Lord.
The hon. Member for Daventry (Mr. Boswell) has said on a number of occasions that there have been three interest rate rises since 1 May. Perhaps he will reflect on why there was no interest rate rise in the first part of the year, which every economic forecaster said there should be so as to control the economy generally and specifically in terms of house purchase.

Mr. Boswell: It is interesting that, after the election result was known, it became clear from the price series for April that the outgoing Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), hit his inflation target precisely in April. We were accused during the general election campaign of not having hit that target. It seemed that inflation would be 2.6 per cent., but we reduced it to 2.5 per cent. It has now risen to 2.9 per cent. because of the direct impact of the Budget.
As for monetary policy at that time, I think that my right hon. and learned Friend the Member for Rushcliffe is to be commended on making his own judgment. I am surprised that the hon. Member for Hove (Mr. Caplin) appears to concur with the view of the Bank of England in the second half of last year, when it demanded an interest rate rise. My right hon. and learned Friend resisted that demand, and I believe that he was right to do so. These are now matters of history, and it is plain that some of the difficulties imposed by the Chancellor are that he has increased taxes and spending in the Budget as well as indicating a relaxation of the inflation target, which is an extremely bad signal to send.
We have a focused tax relief which is intended to give practical help to all sorts of home owners. It is neither regressive nor regionally skewed. It costs £2.3 billion annually, which in cash terms was very much what it was about 25 years ago. It is not very far out of the ball park of about 1 p on income tax. Our complaint is that the Government are aggravating the effects of their hits on higher interest rates on the householder with a tax hit that is entirely of their own making.
The Government's action is likely to have little effect in cooling any alleged boom in house prices, which is by no means universal. The conclusion of the Halifax building society in its latest house price index is that there is no need for any specific Budget measures aimed at curbing an allegedly "booming" housing market. I know, of course, that that must be a matter of judgment.
In fairness to the Government, I do not think that they have made their proposals on that basis. We on the Opposition Benches want to protect the home owner by providing, through the amendment, for no cut in mortgage

interest tax relief to take effect unless and until interest rates are reduced to the historic low levels enjoyed by borrowers on 1 May.
I agree that present signs suggest that it might be rather a long wait before we reach that happy state again. It will be a long wait, because already the Chancellor has shown a readiness to relax his inflation target and a propensity in various ways to favour increased taxation. In my judgment, he is preparing the way for higher spending. Faced with that somewhat bleak picture, we owe it to home owners to offer them some protection, as afforded by the amendment.
To quote the Government, all that we are discussing amounts to a matter of trust. I have changed my spectacles recently, a move that has been of great benefit to my performance at the Opposition Dispatch Box, but I still see nothing in the Labour party's manifesto, with either old or new spectacles, that amounts to a pledge to increase taxes that are paid by home owners.
I have recently shared with the House of Commons a letter from one of my constituents, a Mr. Morrison, and I shall now share it with the Committee. He confirmed my apparent myopia when recently he wrote:
I phoned Mr. Brown prior to the election concerning future fiscal policies. He informed me that no planned reduction in MIRAS would take place and I should look at the Labour Party manifesto, which did not include such measures.
I am afraid that I have still not had any explanation from those on the Treasury Bench about those assertions. It could be that Mr. Morrison got through on a bad line and was misheard. It could even be that someone got into the headquarters or office of the Chancellor and decided to impersonate him. Or, of course, it might not have been a planned hit on mortgage rates at all: it could have been a panic cut imposed at a later date when interest rates were already humming on their upward path.
There has been, therefore—I regret to have to tell the Financial Secretary—a material breach of trust. I invite Ministers on the Treasury Bench to absolve themselves and their colleague by giving some belated explanation of what took place. Tonight, I also invite them to repair the damage that they have caused by at least committing themselves—I hope that the Financial Secretary is listening—to no further reduction in mortgage interest tax relief. Better and more immediately, I invite them to accept our amendment on behalf of the home owners whom, sadly, they have set out to damage.

Mr. Campbell-Savours: I shall be brief, as I had not intended to speak, but having been provoked by the Minister five minutes ago, when he failed to answer my perfectly reasonable question, I feel compelled to do so.
The whole debate begs a question that no Opposition spokesman has answered from the Dispatch Box. I pressed the shadow Chancellor several times to answer a very simple question. He refuses point blank to do so. What would the Conservatives have done if they were in government? Would they have raised interest rates? Would they have raised taxes? Would they have done a little of both? Or would they have done nothing at all?
I asked the other day whether the Conservatives accept that the economy is overheating. Everyone tells me, tells us, tells the Government, that the economy is overheating. The only people who have trouble mouthing those words are Opposition spokesmen. The reason, of course, is that


if they were to do so, it would mean that they, were admitting that the economy was not in a particularly balanced state at the time of the general election.
The reality is that we faced up to our responsibilities the moment we knew what the problems were. I believe that there was almost a conspiracy of silence during the general election campaign, from all sides in the political debate, about what would happen post-Budget. Indeed, the Tory party was part of that conspiracy. I do not remember the Tories telling us at any stage during the election campaign what they intended to do about MIRAS after the election. We all knew that they would remove it.
I challenge any Opposition spokesman to come to the Dispatch Box today and tell us in all honesty that it was not the Conservative party's intention to interfere with MIRAS after the general election. Perhaps it would be better if a member of the then Cabinet were to do so, because I understand that the Cabinet of that time considered the issue of MIRAS. I give way to the hon. Gentleman—

Mr. Boswell: rose—

Mr. Campbell-Savours: Not him, he was not in the Cabinet—I am asking the right hon. Member for Hitchin and Harpenden (Mr. Lilley), who was a member of the Cabinet at that time, whether the issue was discussed in the Cabinet sub-committee.

Mr. Lilley: The hon. Gentleman purports to know what goes on in Cabinet sub-committees. I can assert, from my knowledge, that he is wrong on both counts.

Mr. Campbell-Savours: I am very surprised indeed, because we were being—

Mr. Boswell: rose—

Mr. Campbell-Savours: I now give way to the hon. Gentleman.

Mr. Boswell: I thank the hon. Gentleman for giving way. While he is speculating about what may or may not have taken place in the Cabinet, of which I would not, of course, have direct knowledge, does he nevertheless agree that the words that I quoted from my constituent suggest that it was reasonable for my constituent to decide, in placing his vote on 1 May—the date which is the subject of the amendment—that there was no proposal from the Labour party for a change in MIRAS? Does the hon. Gentleman accept that that was the import of that telephone conversation, or is there some other explanation?

Mr. Campbell-Savours: I think that to some extent there is an element of truth in what the hon. Gentleman is saying, but the reality is that everyone knew that surgery would be required after the general election. All the public opinion polling about what the public considered would be the position after the general election showed that they believed that, whatever Government were in power, there would be increases in taxation. That is a reality.
The polls before the general election showed that the British people expected taxes to rise, and they were correct. We believed that they would rise. Conservative

Members knew that they would rise. The Liberal Democrats believed that they would rise, because they advocated openly in their campaign that they should. Economic commentators knew that they would rise. If I understand it correctly, the Governor of the Bank of England was advocating in private that taxes should rise to take pressure off interest rates and in the decisions in which he was involved at that time with the then Chancellor of the Exchequer.

In many ways, I am arguing is that this is a totally false debate. The reality is that everyone knew that something was going to happen, and now the Opposition lecture us that somehow it is all our fault, when they know that we are dealing only with reality. We are dealing with the inevitable consequences of the underlying weak economy that we inherited.
I believe that the reason why we have to raise interest rates in this country, and why we have the problem with the exchange rate, is because this country is economically weak. Over the past 17 years, we have seen the economy's industrial base shattered. As a result, we cannot withstand the pressure of increased consumption without forcing up interest rates to block it off, for fear of provoking inflation.
If proof is needed, just look across the world. How can the Japanese have such low interest rates? How can Japan allow its consumption to rise without provoking heavy increases in interest rates? Why do we in the United Kingdom generally have a higher interest rate regime? It is because the British economy is fundamentally weak and was immeasurably damaged over those 17 years
I am prepared to concede that many parts of the British economy are now leaner, more efficient and more effective in the way in which they use resources, and that their management is better. Some policies introduced during the years of Thatcherism had that effect, but I am complaining that, in securing those objectives, a major part of the British economy was destroyed and, in the process, an interminable number of people were placed on the unemployment queue. That is the problem. How are we to strengthen the underlying economy of the United Kingdom, particularly the manufacturing sector, without provoking massive inflation in the United Kingdom? In many ways that will be the test for my right hon. Friend the Chancellor.
I shall move on to a comment that was made about the impact of the tax change on the property market. The impact on the top end of the market will be zero. There will be no impact at all. It will have no effect on properties costing hundreds of thousands of pounds, which in effect means most of the property in the London stock. Indeed, the inexorable trend towards higher and higher prices will continue in London, it being the part of the country that is leading the nation.
Because, historically, prices in the regions follow prices in London—whatever happens to the national economy—we await greater rises in the provinces than we are currently seeing, because of the delayed effect. That delayed effect will, to some extent, mitigate any damage that might arise from lower-priced properties. I believe that, at the last general election, in deciding what property to buy, people discounted the fact that they would have to pay more taxes. Therefore, on lower-priced properties, these measures will have little effect.
I come finally to some interesting statistics that I am having trouble understanding. Every week I follow a sample of building society lending rates, published by the Sunday Times—in particular the variable fixed and capped rate mortgages. They provide some interesting reading. I am unable to understand—hon. Members may be able to explain it to my simple soul and perhaps simpler mind—why it is that, in times of rising interest rates, capped rates are now lower than they have ever been, and fixed rates are now as low as they have ever been.
It is interesting to note that the Skipton building society's capped rate is now 7.49 per cent. Some six to nine months ago it was 0.5 per cent. higher. With regard to the five-year fixed rates—anything less than a five-year term is not a particularly meaningful statistic—a number of building societies offer between 7.5 per cent. and 7.95 per cent., which is less than the variable rate, certainly for the privatised mutuals, but the equivalent of many mutual variable rates.
There must be a message in all that. Perhaps it is that the markets believe that interest rates will fall and that at the moment we are simply experiencing an interest rate blip.

Mr. Patrick Nicholls: The hon. Member for Workington (Mr. Campbell-Savours) said that he had not intended to make a speech at all, but felt provoked to do so. I noticed, however, that he had sheafs of notes to call to his aid. I, too, am minded to say that I had not intended to speak but was suddenly provoked by the hon. Gentleman and I, too, have the benefit of being able to produce spontaneous notes.
I want to follow on from what the hon. Gentleman said in a completely spontaneous way, because it just happens to fit in with what I might have said had I intended to speak in the first place. However, I want to say a word first about the context in which the debate is taking place.
We are here today because of the way in which the Bill has been guillotined. I am old-fashioned enough to remember a time when Bills were guillotined because of filibustering or, at the very least, because debates had been going on for so long that it was only right that the Government should be entitled to draw things to an end. That clearly is not the position in this case
We have some three hours to talk about MIRAS and what has been done to it, but it might have been appropriate had we debated it in Committee Upstairs where the measure could have been examined at far greater length and where we could have tabled a series of amendments in order not only to find out exactly what the Government had in mind but to suggest ways in which the measure might have been adjusted, which might even have appealed to Labour Members.
Sadly, when the Committee stage is taken on the Floor of the House, the debate has to be far more general and it is not possible to have such a specific debate. One of the consequences is that it is not so easy for Labour Members to make the sort of contributions that I am sure they would have wanted to make had the matter been dealt with in Standing Committee. Such an opportunity would have

given Labour Members the chance to show that they can think and speak, a talent which many will find particularly useful after the next election.

The Financial Secretary to the Treasury (Dawn Primarolo): I wonder whether the hon. Gentleman's brief says that the reason we are discussing MIRAS on the Floor of the House is because his Front Bench chose to do so, and we were as surprised as he says he is that it is being debated here rather than in Standing Committee.

Mr. Nicholls: One does find with Finance Bills that the Opposition find certain parts that they do not like, so they table amendments in order to debate them. That is not particularly revolutionary. I am not in the slightest bit surprised that my right hon. and hon. Friends thought that it would be a good idea to debate MIRAS. Such a debate is a good idea.

Mr. Boswell: Is it not also in my hon. Friend's mind that this is the biggest single imposition of direct taxation on the ordinary citizen in the Budget? Some much bigger hits on the ordinary household budget come indirectly through the windfall tax and advance corporation tax, but this is the biggest single identifiable measure which strikes at the householder.

Mr. Nicholls: I am sure that that is right.
The hon. Member for Workington, in his spontaneous contribution, was generous enough, as he so often is in these debates, to say that there might be an element of truth in the fact that, if a constituent telephones the shadow Chancellor to ask whether he intends to do something and he says that he does not and then changes his mind and does it, the constituent might feel that he had been misled. A more straightforward way of summarising what the hon. Gentleman said would be to say, "Yes, the man was completely misled."
It was part of the hon. Gentleman's argument that in some way everyone knew that taxes would go up. It is strange for the hon. Gentleman to be cynical, but he was saying, in a rather cynical way, "Well, it doesn't matter if my Government put taxes up. Everybody knew they would. If someone was daft enough to believe my right hon. Friend the then shadow Chancellor when he said that he would not put taxes up, well, he has got it coming to him." I do not find that a particularly attractive argument, even if the hon. Gentleman does.
The fact is that even the hon. Gentleman does not believe it. He is simply making the best of a bad job. The hon. Gentleman is very much a party loyalist. He is one of those who is always prepared to sing in concert with his Front Bench. He is a man who manages to take a lead. He is a man for whom the cry "Give him a job" makes him light up because he knows that one day, because of his loyalty to the party line, it might come to him.

Mr. Campbell-Savours: Say that again.

Mr. Nicholls: I might do so one day.
When the hon. Gentleman tries to pretend that everyone accepted—

Mr. Campbell-Savours: rose—

Mr. Nicholls: The hon. Gentleman feels an intervention coming over him.

Mr. Campbell-Savours: I am the last person on earth who would either be offered or would accept a job.

Mr. Nicholls: It has been my experience that one can never make that assumption with complete confidence.
The hon. Gentleman might say that everyone knew that taxes would go up, but that view was not universally shared. It was not shared by the Prime Minister. In an article in the Financial Times on 21 September 1996 he said:
I have to say"—
that is how he puts it—
that we have no plans to increase tax at all.
He actually used the phrase "at all" to reassure people.
It was not just the Prime Minister who said that. As recently as 8 April 1997, at the beginning of the election campaign, the Chancellor said:
There is no black hole for the Labour party because we have got no public spending commitments that require extra taxes.
One man's black hole leads to someone else's black death, because it is pretty obvious now that there has been a huge amount of extra taxes. It is clear that some people knew that taxes would go up, and those people were the Opposition if they came into government.
It is worth placing MIRAS in the context of 17 tax rises from people who were saying days before the general election that there would be no increase in taxation. I will not go through all of them, but there are some that might be thought to be directly relevant.
MIRAS itself means that taxpayers will pay an extra £950 million. Stamp duty will cost them £540 million; the abolition of tax credits for pensions, £5.4 billion; the windfall tax, £5.2 billion; the limitation on the carrying back of trading losses, £250 million; the abolition of relief for medical insurance, £135 million; corporation tax, block leakage £190 million, finance leasing £300 million, more finance leasing for sale and lease-back £40 million, company purchase schemes £100 million; trade debt schemes £10 million; VAT cash accounting £15 million.

8 pm

By my rough and ready calculations, the Budget raised tax by £13 billion. Only a few short days before the election, the Government said that there would be no need to increase taxation. The hon. Member for Workington argued with a straight face—he cannot keep a straight face now—that everyone knew that taxes would increase and that it is only £13 billion, so who cares. That will not wash. If he wants to know a little more about it, he should ask the Prime Minister and the Chancellor why they said that there would be no need to increase taxation when, according to his analysis, they knew that that was not true.
In the event, the Labour party, which came to power saying that it would not increase taxation, has increased it by £13 billion. This is one of the biggest tax-raising

Budgets in history. I shall give credit where it is due. It is remarkable that the party that managed to produce that huge tax-raising Budget has not yet been rumbled by the electorate.
There are two points to make about MIRAS. Labour Members have said that we started it. It is curious that they justify this change by saying that we did it, so it must be right, even though we are now opposing it. As my hon. Friend the Member for Daventry (Mr. Boswell) explained, when we adjusted MIRAS it was in the context of a downward trend in interest rates.

Mr. Campbell-Savours: No.

Mr. Nicholls: The hon. Gentleman can pick out particular months, but if he sits down later in a reflective mood he will see that when we adjusted MIRAS there was a downward trend in interest rates.[Interruption.] The hon. Gentleman can wave his document in the air as much as he wants, but he should read it quietly, and hopefully he will be able to understand it.
When we adjusted MIRAS, we were heavily criticised by Labour Members. They had a principled objection to doing anything about MIRAS, but in today's Labour party the presence of principle is no obstacle to action and change.
To highlight their embarrassment, it is worth reminding Labour Members of what their leaders were saying about our attempts to adjust MIRAS. As recently as March 1996, in a speech to the Labour housing conference, the present Prime Minister "had to say"—because he talks like that—this:
The first blow the government dealt to homeowners was to cut MIRAS in the 1993 Budget. First to 20 per cent., then a year later to 15 per cent. … the effect of all these measures was to add to insecurity, to destroy confidence in the housing market and to make people much more wary of buying and selling homes.
The hon. Gentleman may raise his eyebrows, and I understand how he feels, but that is what the Prime Minister said.
The then shadow Chief Secretary to the Treasury, the right hon. Member for Oxford, East (Mr. Smith), attacked the changes to MIRAS. In a press release in March 1995, he said:
Many people's living standards will suffer a severe knock when the latest two Tory tax increases take effect in a few weeks' time. These latest tax hikes hit as the Tories continue to argue amongst themselves over the absence of a supposed 'feel good' factor.
We are criticised for suggesting that it is inappropriate for the Labour party to make these changes to MIRAS, but when we made adjustments to MIRAS, we were roundly attacked. Adjustments to MIRAS may or may not be appropriate, but it is clear that Labour Members cannot say that our attack on the Government is inconsistent or intellectually unsatisfying.
Changes to MIRAS do not hit the very rich. Those who recently made a windfall gain of £300,000 or £400,000 by selling their house in London will not be affected by this change. It does not affect people wealthy enough to travel all over the world with their own personal crimper. Alterations to MIRAS have no effect on them whatsoever: to them it is a matter of pence. But such changes affect the people who are just about able to claw their way into the housing market at the very lowest level.
I remember a speech made by the right hon. Member for Chesterfield (Mr. Benn) in which he spoke wistfully of the time when one could go into a council estate and feel at home. He said, "Now you walk down the streets of a council estate and all you see are fake Georgian front doors." That said it all. It showed contempt for the efforts of the very poor to raise themselves above the level of municipal serfdom and get into the property market.
What is so awful about the changes to MIRAS is not the £10 a month that it will cost people—because that is eminently affordable by Prime Ministers, Chancellors of the Exchequer and hon. Members such as the hon. Member for Workington and me—it is the effect that such a sum has on the working poor. [Interruption.] It is all very well for the hon. Gentleman to mock. It is a long time since Labour Members, most of whose salaries have doubled, were in the ranks of the working poor.
Such people will have to find another £10 a month because of the change to MIRAS, and a further £20 a month because of the interest rate rises that have already been announced, let alone those that are in the pipeline. For those people, whose plight makes Labour Members giggle, an extra £30 is real money. It is immensely sad that such changes are being proposed by a party that was once the genuine champion of the working poor, but it no longer has any acquaintance with those people: the principles, rhetoric and concerns that used to matter to the Labour party have been Follettised and Mandelsonised out of existence.
I can imagine what is said in Cabinet: "Let's do a bit of tinkering on MIRAS—it won't matter very much because it's only a tenner here and there." That is what happens when a party cannot even fall back on the paternalism that it has disliked over the years, and has deprived itself of its principles.
These alterations will make a small but significant difference to those least able to stand up to their effects. The view that has been put forward in some newspapers is that this measure was taken to dampen the property market. That is ridiculous. I mentioned that in a spirit of fairness, so that the Financial Secretary to the Treasury, the hon. Member for Bristol, South (Dawn Primarolo) could cross it out if it was in her brief. The hon. Member for Workington is right: this will not be a dampener on the property market—far from it.
One of the consequences of the raid on pension funds was to make them a far less attractive option than they were before. People with substantial sums of money to spare, such as Labour Prime Ministers and Labour Members of Parliament, will no longer think seriously about putting money into pension funds and providing for their future. The temptation will be to plough the money back into the property market. Far from the change being a dampener, it will boost the rise in property values. That is great news for those who can make a killing in the London property market by doing nothing more than sitting on their house in Islington, but it is a pretty sorry day for the working poor, whom it will hit most.

Mr. Geraint Davies: This is a sad day for the Opposition. They complained about the guillotine motion, but how many of them are present? Eight. It is a sad and

pathetic day. They said, "This is terrible. We haven't got time to debate these crucial issues. We didn't want the Budget anyway." Look at them. What a sad lot.
Would anyone in their right mind agree to the Opposition's amendment, which underlines the fact that they are not serious about the long-term prospects of the British economy but still spend all their time thinking about the short-term political impact, as presented in the media, and the impact on their Back-Bench committees or whoever runs their party in this day and age. They are not interested in the long term. The Chancellor's Budget, however, is about the long term: it is about confronting, realistically, the legacy of 18 years of Tory rule.
We all know what that legacy is. It is a legacy of under-investment in physical and human capital, a massive public sector debt that was out of control and an economy that was overheating and, at the same time, disabled by under-capacity. Every time we have seen a bit of consumption in the economy, it has fed straight into interest rates. As my hon. Friend the Member for Workington (Mr. Campbell-Savours) pointed out, that contrasts with the situation in Japan, which has had a long-term industrial strategy.
The Chancellor, boldly and courageously, confronted the Tory legacy with, for instance, incentives for long-term investment—in the context of corporation tax and taxes on small businesses—and, before that, with his bold changes in arrangements involving the Bank of England. We all recall the master stroke with which my right hon. Friend delegated responsibility for the setting of interest rates to the Bank of England.
That is the answer to the question posed by the hon. Member for Teignbridge (Mr. Nicholls) about interest rates in the longer term. They are falling because the financial markets can see beyond the current blip—the current difficulties with sterling and the like, linked with sentiments about European monetary union and the fact that our current position in the economic cycle is out of synch with Germany's. In the long term, under the stewardship of our present Chancellor, we can expect interest rates to fall, providing the environment for health and wealth in Britain.
As for what has been said about massive taxes, a large proportion of the money that will be raised from the portfolio of activity that has been proposed will be used to reduce public sector debt—in other words, to cut future taxes. We inherited responsibility for paying back interest of some £25 billion a year, which, given the financial system, must have future tax implications. There are transfers; it is not a case of the old tax-and-spend idea that people seem to want to talk about.
Notwithstanding the denials that we have heard, we have a problem with housing. Consumption is increasing, and an extra £30 billion has been injected following the flotation of building societies and the like. This was the right time at which to help to stabilise the housing market by introducing a marginal reduction in MIRAS from 15 per cent. to 10 per cent.
As has been said, the reduction will not have a dramatic impact; it is just a touch on the brake. Given that we have given independence to the Bank of England, if we had not introduced the reduction, home owners would in any event have had to bear the cost in the form of a marginally larger increase in interest rates. The advantage of the


MIRAS reduction is that we can reclaim some of the money and invest it either to avoid debt or to support worthwhile causes.
The changes that we have made are clearly good for Britain and good for the home owner. We do not want to return to the days of boom and bust, when home owners did not know where they were going. Under the Tories, at one moment it was a case of run out and buy a house; at the next, house prices were spiralling; a moment after that, prices were plummeting and people had negative equity. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer are the friends of the home owner.

Mr. Boswell: The hon. Gentleman is presenting an interesting argument, and he has just made an interesting assertion. He suggested that the Prime Minister and the Government were the friends of the home owner. I recall the Financial Secretary to the Treasury saying the other day that she regarded the Government as the friend of pensioners. Is there some propensity among Labour Members to take the maximum amount of damage as an indication of how kind one is to people? If so, would it not have been better to increase taxes by twice as much? The Government could then have helped everyone even more.

Mr. Davies: That might sound logical in a cocktail bar—I am sure that the hon. Gentleman has many friends there—but, in fact, all the measures in the Bill involve long-term rather than short-term considerations.
As the hon. Gentleman has raised the issue of pensions, let me explain what the Bill means in that context. We are creating conditions in which British industry is strong and in which pensions are therefore secure. Moving some expenditure to cut future taxes must also be in the interest of the long term. Similarly, acting in the housing market to end an unstable cycle of change and uncertainty to which home owners cannot adjust must be in the interests of those home owners.
The hon. Gentleman will never learn from his party's recent history of instability, uncertainty, insecurity and fear. That was the legacy of old Britain and the old Tory party, but people are now waking up to the reality that things are improving. They have the greatest confidence in the new Government, and so they should.

The shadow Chancellor has no idea of financial management, in that he has no idea whether interest rates should or should not have gone up in recent days. He will say nothing, one way or the other. Why? Is he worried about the view of the financial markets, or about the view of Back Benchers—or is he worried that he does not really know the answer? It is probably a combination of all three.
As we know, the amendment is about increases in interest rates after the election. We also know about the meetings between the Governor of the Bank of England and the last Chancellor of the Exchequer, who called the shots in terms of political interest, but held back interest rates against the long-term interests of the economy so that they would surge back after election day. The amendment suggests that the legacy of the last Government's political interference should interfere with the purity and elegance of the Government's proposals.
Incidentally, the amendment and the former Chancellor's behaviour in the past show that monetary and fiscal policy were governed by political considerations and were not designed to meet the country's long-term economic interests. That is why the Tories presided over the old boom-and-bust economy.
Many of us will remember the time when interest rates were at 15 per cent. We remember when we marched boldly into the exchange rate mechanism, and we remember arguments about the rate at which we entered. We did not know what we were doing. Then, suddenly, George Soros did a bit of manoeuvring, and everything collapsed. That was how we ended up, thanks to the politics and economics of the short term, and it is why we do not need any lessons from the wine bar about how to run an economy in the short term. I am beginning to dwell on specific statistics here, but it is preposterous that the hon. Member for Daventry (Mr. Boswell) can sit there and suggest that figures taken from the House of Commons Library today are wrong, although that is typical of the arrogance of the former Government.
I note that no one has bothered to look up the figures given some time ago by the hon. Gentleman. I may as well give them now. In November 1993, the interest rate was 5.5 per cent. It was in the Budget produced at that time that the Conservative Government decided to reduce MIRAS. By January 1996, the interest rate had risen to 6.25 per cent. By that time, we had seen two reductions, from 25 to 20 per cent. and from 20 to 15 per cent.
The behaviour and policy of the last Government were in direct contradiction to the amendment that we are discussing now. The Conservatives do not even remember what they did. Anything that is easy will be cobbled together in an attempt to mount some ludicrous opposition. There is a ragbag of hon. Members complaining about the guillotine. It is pitiful, is it not?

Mr. Brooke: The hon. Gentleman refers to a ragbag that has been cobbled together. What is his verdict on the Government's proposals on foreign income dividends?

Mr. Davies: I am not conversant with the precise nature of that. It will be articulated later, but that does not undermine my point that only a handful of Conservatives Members are in the Chamber barracking the Government.

Mr. John Bercow: For the benefit of the House, will the hon. Gentleman please name an occasion in the previous Parliament when the current Chancellor of the Exchequer, then the shadow Chancellor, gave a verdict on the level of interest rates, saying that they should be higher, lower or at the level accepted by the then Chancellor?

Mr. Davies: That is precisely the point. The current Chancellor has rightly said that the onus for setting interest rates should be on the Bank of England. Conservatives Members are suggesting again that politicians should jump up and down and say that interest rates are too high and are hurting people here and there. The reality is that we need to set a context in which Britain will succeed. That is why my right hon. Friend the Chancellor did not jump about making the verdicts to which the hon. Gentleman refers.

Mr. Campbell-Savours: There was a momentous occasion when our people made their position on the


matter absolutely clear: it was at the time of black Wednesday in October 1993. Conservative Members forget very quickly indeed.

Mr. Davies: The point is well made.
The Conservative party pretends that it is the friend of the home owner. Under the previous Government, home owners suffered the biggest negative equity in history and there were more repossessions than during the highland clearances. No wonder the Prime Minister said what he said, which Conservative Members have taken out of context. When the housing market was in chaos because of the short-termism of Conservative policy, naturally he said that that was not the time to reduce MIRAS, particularly given the wider economic problems that they had created, but the situation has changed.
Conservative Members talk about trust and say that, before the election, they did not know precisely every detail of what Labour was going to do. Of course they did not. There is no historical precedent for that. A newly elected Government will not have a plan for all the five years of the Parliament, detailing everything that they will do. We gave the thrust of what we were going to do, which was about putting people back to work, creating conditions for economic strength and creating a fairer and better Britain to face the new millennium.

Mr. Bercow: Will the hon. Gentleman give way?

Mr. Davies: Yes, I am happy to do so, because I am running out of things to say.

Mr. Bercow: I am grateful to the hon. Gentleman. I will wager that I have marginally more to contribute to the exchange between us than he has to offer in reply. The hon. Member for Workington (Mr. Campbell-Savours) referred to white Wednesday. I can state beyond peradventure that, in the context of the interests of home owners, I would not wish to see a return to the extended recession mechanism, but will the hon. Member for Croydon, Central (Mr. Davies) tell the House whether, in his judgment, re-entry to the extended recession mechanism would assist or hinder home owners?

The Second Deputy Chairman: Order. I remind the House that the amendment refers to mortgage interest payments, and I would be extremely grateful if hon. Members on both sides of the House confined their remarks to that matter.

Mr. Davies: The extended recession mechanism is a code name for the Conservative party, I presume. I will take your advice, Mr. Lord. We do not want to delay the Committee. All I say in passing is that one of the problems that we face is that exchange rates are too high because of the dilly-dallying and delaying of various decisions.

Mr. Damian Green: Are exchange rates too high now?

Mr. Davies: As perhaps the hon. Gentleman should know, Britain is quite high in its economic cycle relative

to Germany. In addition, the financial markets are concerned about moving towards European monetary union on 1 January 1999, by which time the convergence criteria will not be met by all parties, particularly Italy and Spain, so Britain is being used as a safe haven for money. That is unfortunate for many British manufacturers, particularly those in the midlands, but the answer is not just the Chancellor and the Prime Minister being tough, insisting on the right convergence criteria and not supporting premature entry without it; it is also about providing pricing stability, which we have established through giving the Bank of England more independence, to ensure stability for manufacturers.
The shadow Financial Secretary and I were with the chairman of Ford today, and he was saying that he wants stability. He is getting that from the new Labour Government.

Mr. Boswell: Will the hon. Gentleman give way?

Mr. Davies: I was going to end there, but as the hon. Gentleman is here, I shall give way.

Mr. Boswell: Although I thought that we had an interesting time at Ford, I do not recall the conversation to which the hon. Gentleman refers, but it has just occurred to me that he must have uttered at least 400 words since my hon. Friend the Member for Ashford (Mr. Green) asked him whether exchange rates were too high. I should have thought that it required only one word—yes or no—but I have not heard it yet.

Mr. Davies: I do not know whether this says anything about the hon. Gentleman, but the chairman of Ford chose to sit at my table, not his. Because of that, the hon. Gentleman would not be aware of all the comments were made. Obviously Ford does not represent the British economy. It has a mixed view of different exchange rates because it spends on inputs and outputs and it acts on a European and global basis, but we had an enjoyable time.
I shall not dwell on the matter any further. The point is simple. The amendment does not stand up to any interrogation. It does not command much Opposition support, as we have seen from both the quantity and the quality of commentary. Moreover, the Budget, in terms of the financial markets, share values and the British public's level of confidence, has been given the thumbs up. I am happy to suggest that hon. Members do not support the amendment.

Mr. Tim Collins: I greatly enjoyed the speech of the hon. Member for Croydon, Central (Mr. Davies), for two reasons. He said that the Prime Minister is a friend of home owners. I suspect that the only home owner of whom the Prime Minister is a sincere friend is any home owner who can stump up 675,000 readies to buy his luxury home in Islington.
The other point that I greatly enjoyed was the hon. Gentleman's statement that the shadow Chancellor of the Exchequer should be criticised for not commenting on interest rate movements. When my hon. Friend the Member for Buckingham (Mr. Bercow) pointed out that the present Chancellor failed to comment on any interest rate movement throughout the past five years, the hon.


Gentleman said that politicians should not jump up and down and comment about interest rate movements. A little consistency in his speech would have helped.
Like me, the hon. Member for Workington (Mr. Campbell-Savours) is a Cumbria Member. He said that the economy is palpably overheating and had been clearly overheating for some months, so everyone knew that tax increases would be necessary, whoever formed the Government after the general election. People who believe that the economy is overheating must have been confused by the Labour party's constant references throughout the past year or 18 months to the idea that we were still in a recession.
If it were palpably obvious that the UK economy was overheating, I wonder why it was that, whenever figures came out showing that interest rates were moving in the right direction and, in particular, that unemployment was coming down, the Labour party's reaction was not to say, "That is further proof that the economy is overheating", but, "Those figures are all fiddled. Unemployment is not falling at all." How is that consistent with this palpable vision of an overheating economy?
A point with which the hon. Member for Workington might agree is that, whatever the state of the economy in London and the south-east, it is very difficult to sustain the case that the economy is overheating in our part of the country. He knows that I am fortunate enough to represent one of the more prosperous parts of Cumbria, but we both know Barrow—it is not far from our constituencies—and he would agree that, if one told people there that the UK economy was overheating and needed to be damped down, one would be greeted with a hoarse laugh. There is still great unemployment in the area, and there is no real evidence of anything other than the first rosy fingers of dawn rising over the horizon for economic growth. It is difficult to sustain the case that the economy is overheating and that the first action of an incoming Government must be to wallop £13 billion of tax increases on to that economy.

Mr. Campbell-Savours: Do I presume from that that the hon. Gentleman is prepared to accept that there is overheating, but only in one part of the country—the south-east? If it is the case that property prices are higher in that region, may I presume also that he supports our position on stamp duty?

Mr. Collins: The hon. Gentleman would not expect me to support the Government's position on stamp duty. He said that all voters across the UK knew for a fact that the economy was overheating and that taxes would have to rise, whoever won the election. That is not sustainable.
There is another important reason why people did not believe that interest rate rises and then tax rises would be necessary after the election. People will recall the great public relations stunt performed by the Prime Minister when he was Leader of the Opposition. A large poster was displayed which said that Labour pledged not to increase income tax rates for five years. The poster was signed "Tony Blair". The hon. Member for Workington may have had a similar experience to me in terms of people's responses on the doorstep during the election campaign. People took that poster and the series of pledges—including those referred to by my hon. Friend the Member for Teignbridge (Mr. Nicholls)—to mean that there would be no tax rises at all.
I tried to explain during the election campaign that the poster meant not that the Labour party was promising not to increase any taxes, but merely that it would not increase the basic rate and the higher rate, but could increase direct taxes in all sorts of ways. People replied, "Mr. Blair has said that he will not put up taxes at all." That is what the public believed, and that is the basis for any spurious mandate that Labour may believe that it has.

Mr. Bercow: In addition to being an assiduous representative of his constituents, my hon. Friend is an established and well-respected student of political theory. Does he agree that it is lamentable that Labour did not state in its election manifesto that it intended in this Parliament to reduce tax relief on mortgages when it has always prided itself on being the party that believes in the mandate theory of political representation—in other words, a party that receives a mandate is entitled to do whatever is in its manifesto? Does he agree that that reduction was not in Labour's manifesto and that it is particularly outrageous that, without notice or forewarning, the Government should now propose that highly damaging measure?

The Second Deputy Chairman: Order. Can we have brief interventions please, and not minor speeches?

Mr. Collins: I am grateful to my hon. Friend, and I am also grateful that the Financial Secretary to the Treasury is paying attention. Had she been in the Chamber for the previous debate, she would know that the entirety of the Paymaster General's argument for the windfall tax was that it was in the manifesto which was endorsed by the public, and therefore it must go through. That argument cannot apply to what we are considering now. The reduction in MIRAS was not in the manifesto, nor was it addressed in the election campaign. There is no mandate for it.

Mr. Jim Murphy: I have listened with interest to the hon. Gentleman's version of political theory. Does he apply that analysis to the Conservative party's pledge on VAT on domestic fuel? Will he take the opportunity to apologise for the previous Government—his party—introducing VAT on domestic fuel, or is it only the current Government who have to keep their pledges?

Mr. Collins: I am grateful to the hon. Gentleman for allowing me to nail one of the most pernicious pieces of mythology passed around by the Labour party during the last Parliament. If he studies the 1992 Conservative manifesto, he will find that there is not one single reference in the document to any pledge concerning VAT. It is simply untrue that the previous Government breached any manifesto pledge on VAT. The Labour party manifesto made no mention of MIRAS, yet we are facing substantial changes in it.

Mr. Murphy: That is not an answer. [Interruption.] Well, it is an answer, but it is not an answer to my question. Does not the fact that the increase in VAT was not in the Conservative manifesto make it even worse? The manifesto did not contain that pledge, and no mention was made of it; yet the previous Prime Minister stood at the Dispatch Box and announced that VAT on fuel would


be introduced. Had it not been for the then Opposition preventing him from doing so, the charge on pensioners and the poor would have been greater.

Mr. Collins: I gave a clear answer to the hon. Gentleman's charge, which was that we breached a manifesto pledge. We did nothing of the sort. If he is arguing that, before a party introduces a tax increase, it should announce it in its manifesto, he is making my point for me, which is that the Labour Government should have pledged to tinker with MIRAS.
In moving the amendment, my hon. Friend the Member for Daventry (Mr. Boswell) linked changes in MIRAS to changes in interest rates. Another important principle—which was, broadly speaking, adhered to by the previous Government, even in the adjustments that they made to MIRAS—is that the rate of MIRAS should be related to the basic rate of income tax. Two adjustments were made to MIRAS during the last Parliament. The first was to reduce it to 20 per cent. That was set out clearly as the long-term objective for the basic rate of income tax. By the time that the previous Government left office, they had made substantial progress towards reaching that rate. The basic rate had been reduced to 23p, and a large number of people were already paying at a rate of 20 per cent.
The second adjustment was to reduce MIRAS to 15 per cent. I believe that, over time, it was possible to believe that a Government who had reduced the basic rate from 33p, and then most of the way to 20p, could set a target of a basic rate of 15 per cent., at which point MIRAS and the basic rate would have been reunited.
I remember an excellent speech by my hon. Friend the Member for Buckingham at a Conservative party conference in the 1980s, when he received a standing ovation for proposing that the Conservative party should set a target of a 15p basic rate of income tax. He was greeted by the then party chairman—as I greet him now—as a future Chancellor of the Exchequer.
The difficulty now is that the level of MIRAS being set by the present Government—10 per cent.—is not intended to be related in any way to any target for the basic rate. The Labour party has said that it wishes ultimately to set a starting rate of 10 per cent., but it has no target for the basic rate. Notably, the Budget made no progress towards introducing a 10 per cent. starting rate even at the lowest and smallest level. So the Budget and the Finance Bill have removed any semblance of a relationship between the rate of MIRAS and the basic rate of income tax. That is a dangerous and pernicious development.
What is the purpose of MIRAS? It is, explicitly and rightly, a subsidy of home ownership. Many things are subsidised in the tax system. A generous level of MIRAS subsidises something that is important in our society. Wider home ownership is one of the great achievements of 18 years of Conservative government. Millions more people became home owners as a result of successive changes in financial and other legislation made by the last two Prime Ministers and successive Chancellors.

Dawn Primarolo: I have been listening carefully to the hon. Gentleman. Will he explain why the Chancellor of the Exchequer in 1993, Norman Lamont, gave two

reasons for his reduction in MIRAS—first, that the Government needed the revenue and, secondly, that the reduction helped to spread the pain?

Mr. Collins: I am sure that the hon. Lady will recall, as I do, that Norman Lamont said clearly that one of the reasons for picking 20 per cent. for the first reduction—I made it clear that there were two reductions, first to 20 per cent. and subsequently to 15 per cent.—was that it was the long-term target for the basic rate of income tax. I am sure that other factors were involved.
If the hon. Lady says that the reduction was justified then and is presumably justified now for the purpose of raising revenue, one wonders why the present Prime Minister was so scathing about the Conservative Government's reduction, even three years later. He did not say, "We are in favour of higher public spending. We might not have increased taxes in quite this way, but it was necessary to do it." The Prime Minister said that the reduction in MIRAS was a pernicious Tory tax increase. What is sauce for the goose is sauce for the gander.

Dawn Primarolo: The hon. Gentleman has laid out the case that there was a logical and reasonable basis to the previous Government's decisions on MIRAS, and that they were guided by principles related to the housing market. Will he confirm that the then Chancellor of the Exchequer made it crystal clear in this Chamber that the reduction in MIRAS was a revenue-raising measure? He did not link it to the housing market, whatever might have been in his mind for the future.

Mr. Collins: Any tax increase is clearly made for a number of reasons. Raising revenue is likely to be one of them. One of the reasons why MIRAS was reduced by a Government who were, unlike the present Government, not ideologically in favour of increasing taxes for the sake of it was to plug the gap in the nation's finances caused by a global recession. I am sure that that was a factor. If the hon. Lady goes back and checks in full all the remarks made by the then Chancellor of the Exchequer, she will find what was his thinking. If all that he had been interested in doing was raising as much revenue as possible, he would not have picked a particular level but would have abolished MIRAS entirely.
The Financial Secretary will know that plenty of so-called experts believe that it would be a good idea to sweep MIRAS away. I believe that there is a philosophical and general case for a good level of MIRAS throughout the system. The hon. Lady will know that it is not enough to say, "We need to raise more revenue." If one does that, one whacks taxes up immediately. That is the answer to the hon. Lady's point. I now return to what I was saying before she interrupted me.

There is a general case for mortgage interest tax relief. Wider home ownership was a huge achievement of the past 18 years. It helps to underpin social stability. On housing estates, there is now mixed ownership. Communities in places such as Westminster, in the environs of the House, which has a mixture of public sector and owned housing, are more stable. There is a wider spread of ownership, and more people feel that they have a stake in society. That has always been at the heart


of Conservative philosophy. It is one of the differences between the two parties. It is why a Conservative Government, against ferocious Labour opposition, took through the right-to-buy legislation.
MIRAS is part of the same philosophy. It is based on the belief that, if people own their homes and are responsible for them, they will look after them better. They will have something to pass on to future generations. They will have a centre that they feel belongs to them rather than to others—as people always feel when they live in public housing. That is why widespread home ownership is a good thing, and why it is right to have a subsidy for home ownership in the tax system.
If the amendment is not carried, the Committee will endorse an agenda of the Government that will see not only successive reductions in MIRAS but its elimination, and the disappearance of the belief in a subsidy for home ownership in the tax system. That would be much to be regretted. It would be a retrograde step and we should oppose it.

Jacqui Smith: Is there not a certain illogicality in proposing that a tax subsidy in the housing market to promote home ownership is effective, while arguing that a subsidy in the labour market to promote employment is ineffective? Research would seem to suggest that there is a much larger deadweight effect in the housing market—in other words, people would still buy their houses if they did not receive tax relief—than in the employment market. The Government propose to provide a subsidy to create jobs for people, which must surely be important.

Mr. Collins: I agree with the hon. Lady that there is a strong case for a subsidy of both home ownership and employment. That is why the previous Government introduced family credit. The argument that she uses to undermine the argument for subsidising home ownership could be played back to undermine all the remarks made by Labour Members against family credit. Family credit was targeted at subsidising people to find work. So were the changes introduced by the previous Government in national insurance. Those changes were far more effective than others set out elsewhere in the Budget. However, I can see, Mr. Lord, that you are asking me to return to the amendment. I was tempted off it by the hon. Lady.
I conclude with the clinching argument for the amendment. It explicitly links the change in MIRAS to interest rates. In so doing, it rightly puts the spotlight back where it should be, on the first and probably the most important decision that the Government have taken—the transfer of control of interest rate movements away from democratically elected Ministers accountable to the House to an unelected body, the Bank of England.
Those hon. Members who can receive Channel 5 may have seen last night a film entitled "Runaway Train". It was about a couple of hardened convicts played by Jon Voight and Eric Roberts. The runaway train was piling through the Alaskan landscape out of control. I forget the names of the two hardened criminals in charge of the train, but one was older and more seasoned—let us call him Eddie—and the other was younger and more inexperienced—let us call him Gordon. They were out of control. Every time that the signals told them to go on a different track, they crashed through. Whenever there was

an obstacle in the way, the train crashed through, splinters and branches everywhere. People in its way were mown down, limbs strewn left, right and centre.
The Government's management of interest rates has created a runaway train. The amendment, modest though it may be, would put something of a brake on it by providing that, until interest rates are brought back down, the Bank of England cannot have what it wants: a reduction in MIRAS. I hope that the Committee accepts the amendment before we all get run over by the runaway train.

Mr. Cranston: Conservative Members have presented themselves as the home owner's friends. In 1979 and subsequent years, home ownership is supposed magically to have increased. The fact is that, since the first world war, the trend of home ownership has been up, and the trend of rental accommodation down. Some of my constituents would be surprised by the Conservatives' claim, because they suffered severely in the late 1980s and early 1990s when their houses were repossessed. They certainly do not regard the Conservative party as the home owner's friend.
The hon. Member for Daventry (Mr. Boswell) spoke about a material breach of trust. It seems to me that there is a material smell of hypocrisy here. The rate of relief was reduced from the basic rate to 20 per cent. in 1994, and to 15 per cent. in 1995. He tried to explain that by saying that the context was the downward move in interest rates. My hon. Friend the Member for Workington (Mr. Campbell-Savours) challenged him, and the claim then became a downward trend of interest rates. The fact is that the figures from the Library support neither notion.
The hon. Member for Teignbridge (Mr. Nicholls) worked himself into a lather about how the MIRAS change would adversely affect the working poor. He did not seem to know much about poverty. Again we can identify hypocrisy, because Conservative Members oppose the minimum wage, which would greatly benefit the working poor. Some people in my constituency earn £3, or even £2, an hour, yet Conservative Members oppose a minimum wage.
There are two reasons for clause 15. First, the Government intend to introduce some stability into the housing market. Coupled with the stamp duty proposals, this measure will achieve some stability. The impact will vary around the country and, as with any fiscal measure, it is not possible to produce an absolutely certain result, but when enacted, clause 15 will have a beneficial effect through greater stability in the housing market.
The second reason for clause 15 relates to social justice, a notion mentioned by Conservative Members. In the past, mortgage interest tax relief cost huge amounts of money. As the hon. Member for Westmorland and Lonsdale (Mr. Collins) said, it was a subsidy—a huge subsidy—to home owners, but it worked in a most regressive fashion. It benefited the better-off. Conversely, under the Conservatives, there was a massive decline in expenditure on social housing. Expenditure on housing benefit went up, but only to subsidise people already in rented accommodation.
So little new social housing has been constructed recently that many people have no access to decent housing. That is the context. As Dr. Williams of the


Council of Mortgage Lenders has pointed out, reductions in the rate have made the impact of MIRAS more progressive, but it remains an untargeted subsidy.

Mr. Green: The logic of the hon. Gentleman's argument is that mortgage interest tax relief should be abolished. Is he urging that on his Government?

Mr. Cranston: The hon. Gentleman anticipates me. I was going to remind the Committee that, on Second Reading, I said that I hoped that the Government would consider the case for a targeted subsidy for home owners that would assist people on low incomes to buy their own homes. I have been influenced by the detailed work of Shelter, which has campaigned so well over the years for people who do not have access to decent housing. There is a need for targeted assistance, and I hope that the Government will seriously consider it. The implication is that ultimately I want this untargeted subsidy to be abolished.

Mr. Bercow: In his general election literature, did the hon. Gentleman give any indication that he favoured the ultimate abolition of mortgage interest tax relief?

Mr. Cranston: One can say only a limited amount in one's election address, as hon. Members well know. I told the House that I wanted the Government to consider the matter in coming years.
Finally, I want to deal with the amendment. I have never seen such a pathetic attempt at an amendment. Its intention is clear—the change would not come into effect until interest rates had fallen below a certain level—but it is badly worded. It talks about the average mortgage rate coming down, whatever that means. My hon. Friend the Member for Workington referred earlier to the tables of mortgage rates that appear in The Sunday Times, and other organisations, such as the Halifax, also publish such tables. It behoves the Opposition to explain what is meant by the phrase "average mortgage rate".
One should bear in mind the uncertainty that would be created if the amendment were carried, not least because it would not be put into effect until some time in the future which we cannot identify, and which is not identifiable from the proposed legislation. One of the important principles of tax law is certainty, and the amendment would lead to a great deal of uncertainty. I shall certainly oppose it.

Mr. Green: I support the amendment in the interests of home owners in my constituency and around the country. Secondly, and possibly of equal importance, I support it on the basis of the arguments that we have heard on both sides of the Committee in what has been a fairly lengthy debate. The poverty of the argument in favour of the Government's case for reducing MIRAS is now clear to those of us who have followed the debate.
I should like to pick up on some of the points made by Labour Members. First, however, I should like to refer to the comments of my hon. Friend the Member for Teignbridge (Mr. Nicholls), who said that one of the most scathing attacks against the principle of cutting MIRAS came from the Prime Minister. The hon. Member for

Croydon, Central (Mr. Davies) said that those comments were quoted out of context; I shall give him that context—it was a speech to a Labour housing conference. That attack was the central point of the right hon. Gentleman's speech. He argued that cutting MIRAS would add to insecurity, destroy confidence in the housing market and make people much more wary of buying and selling homes.

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Labour Members have argued that it was possible to make that argument in the early 1990s, when the housing market was in recession. I should point out to those hon. Members, to put the speech in its proper context for them, that not only did the Prime Minister make his speech to a housing conference, but he did so in March 1996, some years after the recession in the housing market of the early 1990s. It is quite clear that the right hon. Gentleman wanted to give home owners throughout the country the impression that he was against any further cuts in MIRAS in principle. It is a bit rich for a Government to introduce a measure in their first Budget, a few weeks after taking office, which so blatantly reneges on a commitment made by their own leader.

Mr. Brooke: Does my hon. Friend remember likewise that that speech was foreshadowed as a major statement of Labour housing policy?

Mr. Green: Indeed I do. That makes the behaviour of the Labour Government all the more disreputable, because almost their first act relating to the housing market reneges on that commitment.
The second argument that we have heard from Labour Members is that somehow the measure is designed to cool down an overheating housing market. We heard that argument most eloquently from the hon. Member for Workington (Mr. Campbell-Savours). There are several reasons why that argument does not hold water.
The first and most obvious is that the Government do not intend to introduce the measure now, but from the spring of next year. If they really believe that the housing market is overheating now, they should introduce a measure to control it now. They should not introduce measures that will be enacted in practically a year's time.
I thought that the country had learnt that classic lesson about fiscal policy in the 1960s and 1970s. Attempts to use it to fine-tune the economy when it is either overheating or cooling down always go wrong, because the timing is always wrong. That truism has been accepted by the authors of all economic textbooks, and it seems to have reached people in every part of the country except those on the Treasury Bench. What they propose is not an effective means of cooling down a housing market that may or may not be overheating.
Even if the Government thought that such a measure was effective, they should look at the facts produced by those who know about the housing market. The Halifax, which constructs possibly the largest house price index, made it clear in its June report that that month's figures support its view that the housing market is recovering slowly and not at the pace that some commentators would suggest. There has been no growth in transactions between April and May, so it said before the Budget:


there is no need for any specific Budget measure aimed at curbing an allegedly 'booming' housing market … Prices paid by first-time buyers fell by 0.6 per cent. in June and is the first monthly fall since January.
So not only will this measure fail to cool an overheating housing market, but according to our best evidence the housing market is not overheating anyway. So the idea is both ill conceived and unnecessary.
Thirdly, I want to pick up a point made by the hon. Member for Dudley, North (Mr. Cranston) about the impact on the property market, especially households with low incomes. As the hon. Gentleman said, the Council of Mortgage Lenders has pronounced on the matter, but it said the very opposite of the impression that the hon. Gentleman gave us:
The restrictions imposed on mortgage tax relief in recent years mean that now it is a better source of targeted help to households on low incomes. Nearly 5 million home buyers, about half the total number of home owners who are in receipt of mortgage tax relief, have incomes of less than £20,000.
They will be the very people hit hardest by the measure, which will mean more to those on relatively low incomes.

Mr. Cranston: Admittedly, the effect of the tax is now more progressive—but purely by accident. Hence my suggestion that ultimately a more targeted benefit ought to be considered by the Government.

Mr. Green: I shall deal later with targeted benefits. Whether by accident or design, I am glad that the hon. Gentleman admits that it is now a targeted benefit. It helps home ownership, which is a good thing; and at the moment it particularly helps home owners on relatively low incomes. That seems to me an ideal subsidy.
The CML goes on to make the point that previous cuts in mortgage tax relief took place against a background of rapidly falling interest rates, and that the move proposed by the Government will mean an increase of 1.25 per cent. in mortgage rates for lower-income households. The hon. Member for Dudley, North quoted the deputy director general of the CML, Peter Williams. What he said in full was:
The Government should understand that further cuts in mortgage tax relief do not represent a zero-cost option. Ill considered action on mortgage tax relief based on short-term expediency of releasing funds for other programme priorities is likely to damage home owners and the housing market indiscriminately.

Mr. Stevenson: I want, first, to reassure the hon. Gentleman that, although his Front Benchers are not listening to him—they have been absent for 20 minutes—we are. Secondly, as regards the housing policy credibility of our respective parties, will he remind the Committee which Government presided over the worst ever crisis in housing and home ownership? It resulted in 1,000 repossessions a week, and has continued from the late 1980s to this day.

Mr. Green: When the housing recession occurred, the Conservative Government put in place a rescue package for those who were in trouble. This Government are hitting householders in two ways: cutting mortgage tax relief, and steering an economic course that has made interest rates go up. The Government are walking into another housing crisis. Because their spending priorities lie elsewhere, unlike the previous Government in the early

1990s, they will not want to organise a rescue package for those hit by negative equity. Labour is not interested in home owners, and we can be quite sure that the measures in the Budget that will damage the housing market will not be made up for by any rescue packages.
There are some who agree with the hon. Member for Dudley, North that there should be changes. Some groups are not instinctively in favour of home ownership and have argued for different types of housing subsidy. Even they, however, are not in favour of the measure. The Shelter briefing on the 1997 Budget says:
The announced cut in MIRAS will hit the poorest owner-occupiers hardest".
That is hardly a piece of central office propaganda. When a Labour Government introduce a measure that alienates millions of home owners and Shelter at the same time, they should realise that they are on the wrong tack.
Shelter states:
For those on low incomes, a monthly increase in mortgage payments of around £10 per week will be critical to their budget … Reductions in the level of MIRAS ought to be redirected into a mortgage benefit or mortgage security scheme.
The Government have given us the worst of all worlds. They are hitting the home owner, while not doing anything that might meet the demands of those who misguidedly think that a specific and more targeted form of tax relief for certain classes of home owner would be more effective.
We can see the outlines of the effect of the measure if the Government do not accept our amendment and proceed with their original policy. There will be continuing uncertainty in the housing market, which will inevitably spill over into the wider economy. Labour Members have repeatedly said that they want a climate of certainty. No home owner and no prospective home owner can be certain about the housing market because of the Government's actions.
Contrary to all their swords and propaganda before the election, the Government's first action is to cut mortgage tax relief. They will give no guarantee that they wish to preserve mortgage tax relief through this Parliament, and are being urged by their Back Benchers to get rid of it. That is a recipe for uncertainty, and will damage the housing market for years to come.
The Government are making mortgage tax relief less and less of a cushion for home owners when interest rates rise, as they are doing. As the financial markets have become increasingly uncertain about the Government's grip on the economy, they have put up interest rates—those interest rate rises are likely to go further. Home owners have every right to be uncertain and prospective home owners are even less likely to want to enter the market, which will create a spiral of decline.
The motivation behind the measure is clear: it is the Labour party's underlying hostility to home ownership and home owners. The measure is a traditional Labour measure. The Labour party does not like home ownership; its members regard it as a Conservative ideal, which it is. It gives people a direct, individual stake in society. It is one of the cornerstones of Conservative philosophy, and has always been opposed by the Labour party.
The Budget proves that, whatever weasel words were spoken before the general election, one of the Government's first acts on taking power has been to


damage home owners and the housing market. Many millions of home owners will feel betrayed by the Government, the Budget and this particular measure.

Mr. Jim Murphy: I am grateful for this opportunity to speak in the debate. I shall attempt to be brief—a lesson that I am learning from listening to the less than factual contributions of many Conservative Members.
I welcome the broad thrust of the Finance Bill. Having listened to this debate for many hours this evening, I welcome the fact that the guillotine has been used. If Labour Members had to sit and listen to even more of the sort of contributions made by the last three or four Conservative Members to speak, they would jeopardise many of their sensibilities.
We are discussing a 23-word amendment. At different times during the debate, there have been anything between six and, at the current top rate—I have obviously brought the crowds in—nine Conservative Members in the Chamber. Although we are not having an education debate, I calculate that the figures show that we have had between two and a half and three and a half words per Conservative Member. I have been advised that, at some points, the Opposition Front Bench has been empty.
It took the hon. Member for Westmorland and Lonsdale (Mr. Collins) 23 minutes to offer his murmurings and protestations on the 23-word amendment to the Labour Budget. He offered no analysis of what Conservative Members would do to improve the economy and bring long-term stability. Until Opposition Members are able to do that, they will be found wanting, and I suspect that they may, as a consequence of that and other things, lose the vote tonight. [Interruption.] That is a dangerous prediction, but I suspect that it will be accurate, because only six or nine Conservative Members are present.
I spoke on Second Reading, which was very interesting—more so than tonight's debate. The hon. Member for Daventry (Mr. Boswell) paid me a welcome compliment on my remarks that evening.

The hon. Member for Grantham and Stamford (Mr. Davies) also contributed to the Second Reading debate. Alone among Opposition Members, he has been honest enough to say what the Opposition would like to do about MIRAS. I shall quote two comments that he made in his speech that evening. When asked by the Economic Secretary to the Treasury what the Opposition would have us do, first he said that he would not reduce VAT on fuel, because that would be
a perverse thing to do.
It is making an unusual and warped value judgment to suggest that reducing charges for the most vulnerable members of our society would be perverse.
More important for tonight's debate, when the hon. Member for Grantham and Stamford was asked about MIRAS—the next Opposition Member to speak may choose to agree or rebut, criticise or congratulate—he said:
I would have got rid of mortgage interest relief altogether."— [Official Report, 10 July 1997; Vol. 297, c. 1120.]

That is a telling statement of the feelings of many Conservative Members; thus far, it has been the only statement by any Opposition Member on what they would have us do. Until such a claim has been rebutted or clarified, I, for one, will take that as a statement of what the Conservatives would have done if they had been in government.
The hon. Member for Ashford (Mr. Green) made what seemed, at least to me, an unusual comment—he mentioned Shelter's briefing on the Budget. It is unusual for a Conservative Member to compliment Shelter, as the previous Government did so much to bolster its business. That is one of the businesses and organisations to which the previous Government did bring increased funding and increased business—because of their housing policy, the number of repossessions, the amount of negative equity and the difficulty caused to what have been described tonight as "the working poor".
We all know the essential details of the measure reducing MIRAS to 10 per cent. It has been welcomed by the Confederation of British Industry and others because it helps to place our public finances on a sound footing. It helps to create a system of stable economics. It removes once and for all the concept of boom and bust—that has been a litmus test of economic policy—and I am reassured by the fact that it prevents overheating in the property market. If we are talking about the working poor, as the hon. Member for Teignbridge (Mr. Nicholls) did tonight, that fact in itself is of great benefit to those at that lower end of the property market.

Mr. Loughton: If the hon. Gentleman believes that the reduction in MIRAS will end the boom-bust syndrome in the property market, why have the Government not abolished it? Why have they introduced other measures in the Budget, especially that to remove ACT from equities—which has direct consequences for property investment by pension funds, among others—that will cause a marked return to a boom, which will inevitably be followed by bust in the not-too-distant future?

Mr. Murphy: I thank the hon. Gentleman for that interjection. The Labour party takes a balanced approach to those issues. We are talking about a 5 per cent. reduction, whereas the previous Government brought about a 10 per cent. reduction. We are moving away from boom and bust towards long-term economics. I believe that the hon. Gentleman will be one of the next speakers in the debate and I look forward to hearing what he would have done in terms of MIRAS and all the other policies in the Finance Bill, were the Conservatives in government.
The hon. Member for Daventry (Mr. Boswell) said earlier that the Labour party was involved in an enormous "material breach of trust". I do not know why he asserted that—nothing could be further from the truth.

Mr. Boswell: The hon. Gentleman will appreciate that, even if I complimented him on his last speech, I do not always have to do so. The point is that the then Opposition set itself up as somehow vested with moral superiority. They said that they would keep all their pledges, which the previous Government had not done, and that there would be no tax increases. There was also a specific


exchange with a constituent of mine. I await with interest the Financial Secretary's explanation of what I rightly described as a "material breach of trust".

Mr. Murphy: I thank the hon. Gentleman for that interjection. He clearly did not read our manifesto in detail, or the 12 ft by 8 ft posters about our tax policy, which were put up throughout the country. I was grateful to the hon. Gentleman for his compliments on my speech; he will be aware that, thus far, I have not complimented him on his speech, because it was devoid of coherent argument. I hope that any other speeches he makes this evening will redeem the quality of his argument.
The electorate are in no doubt who breached their trust before the election and, to an extent, since the election. They showed clearly that the Conservatives were distrusted on the economy and had surrendered that ground to the new Labour party. They believed that the Conservatives were the party of boom and bust—the party of the few rather than the many—and that the Labour party was the exact opposite: we believed in long-term economic prosperity and understood how to deliver it, and we believed in governing for the many rather than just the few.
Conservative Members sometimes find it uncomfortable to talk about polling evidence. I contend that it is sometimes helpful for politicians to be in touch with public feeling and public opinion. That is one reason why we sit on the Government Benches putting forward our Finance Bill, while Conservative Members sit on the Opposition Benches with a 23-word amendment which will do nothing to improve the economy. Nevertheless, in opinion poll after opinion poll before and after the general election, the public realised that the previous Government's inactivity and economic impotence brought about repossessions and negative equity.
More important than any headline figure, the individuals who make up that polling evidence want long-term economic stability. They want to be able to plan their lives for the next five or 10 years, which is why people, especially my constituents in Eastwood, welcome the idea of long-term planning. Even after the reduction in MIRAS, families with a £50,000 mortgage are £250 better off than they were at the high point of interest rates under the previous Government.
We have heard much this evening about how Labour has allegedly lost touch with those who represent the "working poor". In addition to the contents of the Finance Bill, which will help those very people and bring about long-term prosperity, it is important to consider what we have done in respect of education for those people, and what we will do in respect of the health service for the majority of our population, and in respect of job opportunities to ensure that many more people are working and many fewer people are poor.
That is why I am eager to lend my support to the Finance Bill. With reference to the working poor, I want to ensure that many more people are working and far fewer are poor.

Mr. Robert Walter: I hope that the Committee will forgive me if I rise to the challenge of the hon. Member for Eastwood (Mr. Murphy), who asked what we would have the Government do. We would not have introduced a Budget at this time, so we would

not be debating the Finance Bill. We would not be introducing a windfall tax or a tax on pensions and pensioners, and we would certainly not be instituting an increased tax burden on home owners, which is the subject of the clause and the amendment.
I shall try to confine my remarks to the reduction in MIRAS and the implications for home ownership. From the contributions that we have heard this evening, it is clear that Conservative Members are concerned about that, whereas Labour Members seem less concerned.
I congratulate the hon. Member for Dudley, North (Mr. Cranston) on his honesty and frankness with the Committee when he said that he wanted the total abolition of mortgage interest tax relief. From the answer he gave, I suspect that he was not so frank with his constituents at the last election, which may be a pity. None the less, I am sure that they are all avid readers of Hansard and that they will be put right tomorrow morning.
The clause is a mean measure. It fails to meet the criteria or the rhetoric in the Chancellor's Budget statement. In his concluding remarks in that statement, the Chancellor said:
The measures that I have announced today for stability, for investment … will make Britain better equipped and more ready to face the future with confidence.
Previous Budgets pursued the short-term interests of the few. This Budget advances the long-term interests of the many. It is a Budget that equips Britain for the future—meeting the people's priorities. It is a people's Budget for Britain's future."—[Official Report, 2 July 1997; Vol. 297, c. 316.]
For this measure, the people will pay. In the first year of its introduction, they will pay £900 million. I am sure that people will be delighted with that contribution to their long-term investment in their homes and in home ownership.
MIRAS is not as relevant to the well-heeled Member of Parliament or to the City whiz kid as it is to those on middle incomes and below. Currently, 68 per cent. of homes are owner-occupied—an increase from 56 per cent. in 1979. Four million new home owners have benefited from the Conservative approach to home ownership, of which MIRAS was but a small part.
The Conservative approach to housing is based on three core values: choice, opportunity and responsibility. Choice is central to our policy. We believe that individuals, not Government, know what is best for them and their families. In housing, the state's role is to ensure a diversity of provision to extend choice as widely as possible. Opportunity is closely related to individual choice, and we believe that we should create greater opportunities for investment and innovation in housing to assist not only the home owner but the private rented sector.

Mr. John McAllion: Who wrote this?

Mr. Walter: That is a very interesting point. It was not the hon. Member for Hartlepool (Mr. Mandelson).

The Second Deputy Chairman: Order. Hon. Members should not come into the Chamber and make comments from a sedentary position.

Mr. Walter: Thank you, Mr. Lord.
A further principle is responsibility. The previous Government sought to extend responsibility through opportunity and choice. In the White Paper "Our Future


Homes", which was published in June 1995, we said that continued growth of home ownership for those who wanted and could afford it was a central principle. Home ownership has increased over the years to 68 per cent. of households. The lower and middle-income groups have seen an extension of home ownership. People have been able to buy council houses and houses in the lower range of the market for the first time. MIRAS has been a very real benefit to them.
The Government secured a very large majority at the last election, so, to some extent, they can ignore the effects of this measure on lower-income families. However, those families will be affected most by this very mean measure. The reduction in MIRAS will have exactly the same effect on the City banker, with his £300,000 mortgage on his £500,000 house, as on the first-time buyer, with his £30,000 mortgage on his £40,000 or £50,000 house. There is no distinction: the measure will hit everybody equally. Therefore, the burden is proportionately much greater for those on lower and middle incomes. I have read the full text of the Budget, and I find it most intriguing that the measure is couched in such terms.
This is a very mean measure. It does nothing for housing, for the low-paid and for investment, and nothing for Conservative Members.

Mr. Steve Webb: We have heard some striking contradictions in the speeches of Opposition Members on the amendment. They were exemplified by the hon. Member for Ashford (Mr. Green), who regarded the cut in mortgage interest tax relief from 15 to 10 per cent. as an assault on home ownership. He apparently had no problems with the cut from 25 to 20 per cent. or from 20 to 15 per cent. that the Conservative party implemented a few years ago. Perhaps he would like to take this opportunity to dissociate himself from the actions of the previous Government.

Mr. Green: If the hon. Gentleman had been listening when my colleagues and I made our speeches, he would know that there is a difference between cutting mortgage interest tax relief at a time of rapidly falling interest rates and cutting that relief when interest rates are rising rapidly. That makes the real difference for home owners, and that is why the measure is so damaging to home owners and to home ownership.

Mr. Webb: Judging from that response, I suspect that the hon. Gentleman would be in good company with angels and pinheads.
The Opposition are not alone in having a contradictory position on this issue. I welcome the fact that the reduction in mortgage interest tax relief removes some cash from the personal rather than the corporate sector. The Budget did not do enough on that front, so, to that extent, I welcome the measure.
The Budget is supposed to be about welfare to work, but what are the prospects for people with mortgages who want to take a low-paid job? They will find that their mortgages are higher when they are in work. When in opposition, Labour Members opposed the cut in help with mortgage interest for those on income support. If we want

people to move from welfare into work, we must give them security and ensure that, if they lose their jobs, they will receive help with their mortgages. At present, as soon as someone comes off income support, even if it is only for a few weeks, his mortgage will not be paid if he loses his job. For many people, the risk is not worth while. What will be done to help those people under the Government's proposals?
The question has been asked: what would Opposition Members do? We have heard that Conservative Members would do nothing, because they would not have had a Budget. My colleagues and I, however, would have gone one step further: we would have spent part of the money saved from the cut in mortgage interest tax relief on low-income benefit, to which the hon. Member for Dudley, North (Mr. Cranston) referred. That would at least cushion the blow and help people to move from welfare into work. If the Budget is to be seen as a welfare-to-work measure, why has the issue of the low-income home buyer not been addressed?
It is clear that mortgage tax relief is on its way out, either rapidly or slowly. However, unless the position of those who are trying to move from the bottom end of the labour market is not taken into account, we shall never make progress. What will be done to remove the insecurity that is felt by many at the bottom end of the labour market? They are told now to rely on private mortgage insurance, but what private mortgage insurer has any interest in someone on a short-term contract or in a low-paid job?
Will people who are currently in receipt of welfare be in a position to take work, and what will happen when they lose it? We know, of course, that people will be forced to take work. We know that there will be compulsion for young people, for example. What will they live on? What encouragement does the Budget give them to take chances? It seems that there is a paradox in the Government's approach. They talk about welfare to work, but they provide no support for those who are willing to take the chance. That is the fatal weakness of the clause.

Dawn Primarolo: Apart from a fleeting reference to the amendment in the opening remarks of the hon. Member for Daventry (Mr. Boswell), no further remarks have been directed to it. Our discussion started with a reference to the Conservative Government's six changes to MIRAS, including the announcement of a cut in November 1993. It was introduced in 1995 when interest rates were moving up. Opposition Members never suggested when they were in government that a delayed-mechanism amendment of the sort that they are now proposing was needed.
Various Conservative Members have told us how important MIRAS is and explained that Conservative Members, when in government, never touched it except on principle. As I said in an intervention, however, the then Chancellor of the Exchequer, Norman Lamont, made it absolutely clear why he was cutting MIRAS: he explained that the cut was to raise revenue and to spread the pain.
The hon. Members for Teignbridge (Mr. Nicholls), for Westmorland and Lonsdale (Mr. Collins) and for Ashford (Mr. Green) told us how they were really the friends of the poor. The hon. Member for Teignbridge was terribly


concerned about the working poor. It is a shame that he was not so concerned during the property boom, when thousands of those people were losing their homes through repossession. It is a shame that the hon. Member for Westmorland and Lonsdale did not express his concern for social stability as people were deprived of their homes and savings.
Before the hon. Member for Ashford (Mr. Green) rises, perhaps he can explain exactly what the Conservative Government did to assist negative equity, because my recollection is that it was the building societies and not the Government who made arrangements to assist those people.

Mr. Green: Will the Financial Secretary tell the House whether she thinks that her measure in the Finance Bill will help poor home owners or make them worse off?

Dawn Primarolo: Turning to the question—[Interruption.] I know that some hon. Members have had a very good evening drinking and eating. I was about to deal with affordable housing and who benefits in the housing market.
I should remind hon. Members that most lenders have special schemes for first-time buyers and that interest rates are still extremely low compared to the record levels reached under the Conservative Government, when a typical mortgage of £50,000 would have cost £250 more than it does now. [Interruption.] I see that we are all returning from the restaurant.

Mr. Boswell: When one of my hon. Friends asked the Financial Secretary a question a moment ago, I had the impression that she was reluctant to answer it, so I put it to her again. Does she feel that home owners, particularly those in more modest circumstances, will welcome the changes in her right hon. Friend's Budget, or not?

Dawn Primarolo: I realise that it is a good sport to trade across the Dispatch Box, particularly at this time of the evening, but as the hon. Gentleman knows, what is most important for those who own their own homes is stability and security in the housing market, and a prospect that they will manage to keep their houses.
Referring specifically to—[Interruption.] Sir Alan, this is very difficult. The Opposition table an amendment, repeatedly complain that it is not dealt with at the Dispatch Box, and then come into the Chamber simply to cause disruption.

Mr. Green: rose—

Dawn Primarolo: An amendment is before the Committee, to which I have to respond. I intend to respond to it, and when I have, if there is time, the hon. Gentleman can certainly intervene again.
The reduction in the rate of mortgage interest relief is an important measure to give economic stability. The point of the amendment is that it delays the implementation of that reduction—a delay that was not sought by the Conservatives when in government. The delay would not assist mortgage lenders. The very notice that we are giving them in the Budget would be denied them in terms of being able to deal with their mortgagees.
The amendment simply will not work, because there is no recognised average mortgage rate or prevailing rate, and it does not tell us who will decide what that rate should be. The amendment will cause instability rather than provide stability in the market. Opposition Members have referred continually to election manifesto promises, but the Conservative party's 1992 election manifesto promised to maintain mortgage tax relief, only for it to be cut when they came into office.
9.45 pm
The Council of Mortgage Lenders has said that the Budget package contains a prudent set of measures. The Halifax has said that it will allow the steady recovery in house prices to continue. The Budget has been welcomed by the Institute of Directors and a number of other building societies which are clear that there is need for action now in the housing market. Opposition Members have also referred repeatedly to comments made by my right hon. Friend the Prime Minister. It is necessary to apply a gentle brake to the housing market because of the increase in prices and in order to secure the stability that all house owners want. In the three months to June, prices were up 2.1 per cent. on the previous month and 6.8 per cent. on the year as a whole. That shows why it was necessary to dampen down the housing market.

Mr. Boswell: Will the hon. Lady comment on the second quarter's report of the Halifax, which said:
there is no need for any specific Budget measures aimed at curbing an allegedly 'booming' housing market"?
Does she agree with that comment, or does she simply beg to disagree?

Dawn Primarolo: We need to ensure stability in the housing market so that those who own their houses and those who seek to own their houses are not at the mercy of the market from which they suffered under the Conservative Government. What we do not want to see is rising house prices or people trapped in negative equity and unable to provide for themselves.
The Government's proposals are sensible and modest. The amendment would not work and is not viable. It would not give stability and it would deny mortgage lenders time to plan for and adjust to the changes. The Government's proposals seek to prevent a return to the boom and bust policies of the previous Government. On that basis, I ask the Committee to reject the Opposition amendment and to support the Government's measures to provide stability and to assist home owners.

Mr. Boswell: This has been an interesting debate, and merely reinforces the official Opposition's determination to press the amendment to a vote.
I will deal first with the contributions of Labour Members, which have contained two themes. Two new Members, the hon. Members for Croydon, Central (Mr. Davies) and for Eastwood (Mr. Murphy), emphasised the importance of stability, as did the Financial Secretary—they were obviously all on message. That concept is rather like motherhood and apple pie, and one from which I cannot dissent, although three successive interest rate rises and a series of unpromised and uncovenanted tax increases on a large scale in the space of eight weeks does not seem to suggest a Government bent on stability.
Labour Members also showed some MIRAS scepticism. The hon. Member for Workington (Mr. Campbell-Savours), who has been in the House a long time, said that everyone knew that Labour would breach its election pledge. He characteristically suggested that there might have been a conspiracy between Members of the two Front Benches to produce a collective guilty secret. Neither my constituents nor I saw any sign of that being offered to us during the election campaign.
The hon. Member for Dudley, North (Mr. Cranston), who outed himself as an opponent of MIRAS, said that he was not able to include this measure in his election address due to inadequate space—the only Labour election address in history that could have been a little longer so as to be a little more informative. His theme was that we all knew that MIRAS was coming to an end, and so it should. He implied that we should not take too seriously the matters of trust invoked by his leader.
The hon. Member for Northavon (Mr. Webb) made an interesting contribution. He and my hon. Friend the Member for Ashford (Mr. Green) touched on the possibility of restructuring, which was open to the Government and could be in subsequent Budgets. The Government could have introduced proposals, but merely to make a cut is a major breach of faith.
I greatly enjoyed the contributions of my hon. Friends, which contained two underlying themes. They were concerned about the home owner, and not merely about Islington man or those at the top who have cleared more than £0.5 million in a particular sort of windfall which is not being taxed under the windfall levy. According to the Financial Secretary, such windfalls will not be available to any persons bent on making money out of their houses in the future. She said that the housing market was overheating and that action had to be taken, so people will not make a profit on their houses in the future. My hon. Friends emphasised their passionate commitment to home ownership at all levels of income and for people from all walks of life.
I hope that the Government will take note of my hon. Friends' concern about the breach of trust, which goes all the way up to the Prime Minister. It is not possible to construe the words delivered by the Prime Minister to Labour's housing conference in any other way than that MIRAS was safe in his hands. Now we know better.
In the Financial Secretary's brief remarks—she read out her brief, which Ministers have done since time immemorial—she pointed to alleged deficiencies in the drafting of the amendment. As a matter of fact, we did speak to our amendment. Nevertheless, she was unable to answer the serious questions put to her. For example, my hon. Friend the Member for Ashford asked the Financial Secretary to answer a specific question: which home owners would benefit? As she did not appear to understand that perfectly simple question, I asked it again, but I am still waiting for an answer.
What has become increasingly clear during the debate, however, is the Government's approach to taxation. The theme was initiated by the Financial Secretary the other day, when she said that pensioners would welcome the Budget, and that pension funds would benefit from it. That theme was taken up today by the hon. Member for Croydon, Central (Mr. Davies), who said that the

measures were for the good of home owners. This is not the first occasion on which Labour Governments have said that taxes—

Mr. Geraint Davies: Will the hon. Gentleman give way?

Mr. Boswell: Briefly.

Mr. Davies: Do you agree that your comments about the Prime Minister—[Interruption.] I am sorry. Does the hon. Gentleman agree that his comments about the Prime Minister were out of context, and that what Tony Blair was referring to—[Interruption.] Does the hon. Gentleman agree that what the Prime Minister was referring to was a housing market that had been crucified by your Government—[Interruption.] The Prime Minister was referring to a housing market that had been crucified by the hon. Gentleman's Government, in terms of negative equity and repossessions. In the present circumstances, is it a good idea to start another cycle of boom and bust? If the hon. Gentleman were in the Government, would he encourage an over-fuelling of the housing market, which would cause a repeat of the chaos and catastrophe that were produced by the hopeless leadership of his party?

Mr. Boswell: I advise the hon. Gentleman to make his interventions shorter, and to stop digging when he is in a hole.
The law that has been made clear by Labour Members—it might be termed the Bristol, South law—is that if it is bad for you, it is really good for you. It was put very well by Shakespeare, who spoke of taking correction mildly and of kissing the rod. That could apply to taxpayers. It was put even more succinctly by the Roman historian Tacitus, who said, describing methods of classification:
They create a wilderness and call it peace.
When the Government create a wilderness for taxpayers, they call it "really in their own best interests."
We have heard no explanation from the Financial Secretary of a specific point that I raised both on Second Reading and tonight. I asked why mortgage interest tax relief should be further reduced, given that that breached a pledge made to my constituent. I also asked the Financial Secretary for a commitment that the present Government would at least not make further reductions in MIRAS, but I heard no such commitment from her lips.
Meanwhile, Conservative Members realise that home owners will suffer under the Budget. They will be losing an average of £21 a month in higher interest rates, following three hikes of £7 a month. They will be losing £9 a month following the Chancellor's discretionary decision to withdraw a further tranche of mortgage interest relief. That means that home owners—the ordinary people—will already be losing £30 a month under the present Government. I think that, so far, they are losing about 50p a day each.
I am sorry to say that there is no sign of interest rates coming down. I remind the Committee that our amendment prescribes that the wilful increase in tax caused by the withdrawal of further mortgage interest relief should not take effect until interest rates return to the level that we bequeathed to the Labour Government.


There is no sign of interest rates coming down. There is no need for this hit on the house owner. It should not take effect at least until the Government have, in their own terms, stabilised the economy and reduced interest rates to where they were.
Our proposal is to protect home owners. That is our commitment on the Conservative Benches, and that is why we shall press this amendment to a Division with considerable relish.

Question put, That the amendment be made:—

The Committee divided: Ayes 147, Noes 381.

Division No. 57]
[9.59 pm


AYES


Ainsworth, Peter (E Surrey)
Greenway, John


Amess, David
Grieve, Dominic


Ancram, Rt Hon Michael
Gummer, Rt Hon John


Arbuthnot, James
Hague, Rt Hon William


Atkinson, Peter (Hexham)
Hamilton, Rt Hon Sir Archie


Baldry, Tony
Hammond, Philip


Beggs, Roy (E Antrim)
Hawkins, Nick


Bercow, John
Heald, Oliver


Beresford, Sir Paul
Heathcoat-Amory, Rt Hon David


Blunt, Crispin
Hogg, Rt Hon Douglas


Body, Sir Richard
Horam, John


Boswell, Tim
Howarth, Gerald (Aldershot)


Bottomley, Peter (Worthing W)
Hunter, Andrew


Bottomley, Rt Hon Mrs Virginia
Jack, Rt Hon Michael


Brady, Graham
Jackson, Robert (Wantage)


Brazier, Julian
Jenkin, Bernard (N Essex)


Brooke, Rt Hon Peter
Johnson Smith, Rt Hon Sir Geoffrey


Browning, Mrs Angela



Bruce, Ian (S Dorset)
Key, Robert


Burns, Simon
King, Rt Hon Tom (Bridgwater)


Butterfill, John
Kirkbride, Miss Julie


Chapman, Sir Sydney (Chipping Barnet)
Laing, Mrs Eleanor



Leigh, Edward


Chope, Christopher
Letwin, Oliver


Clappison, James
Lewis, Dr Julian (New Forest E)


Clark, Rt Hon Alan (Kensington)
Lidington, David


Clark, Dr Michael (Rayleigh)
Lilley, Rt Hon Peter


Clarke, Rt Hon Kenneth (Rushcliffe)
Lloyd, Rt Hon Sir Peter (Fareham)



Loughton, Tim


Clifton-Brown, Geoffrey
Luff, Peter


Collins, Tim
Lyell, Rt Hon Sir Nicholas


Colvin, Michael
MacGregor, Rt Hon John


Cormack, Sir Patrick
MacKay, Andrew


Curry, Rt Hon David
Maclean, Rt Hon David


Davis Rt Hon David (Haltemprice)
McLoughlin, Patrick


Davies, Quentin (Grantham)
Madel, Sir David


Day, Stephen
Malins, Humfrey


Dorrell, Rt Hon Stephen
Maples, John


Duncan, Alan
Mawhinney, Rt Hon Dr Brian


Duncan Smith, Iain
May, Mrs Theresa


Emery, Rt Hon Sir Peter
Merchant, Piers


Evans, Nigel
Moss, Malcolm


Faber, David
Nicholls, Patrick


Fabricant, Michael
Norman, Archie


Fallon, Michael
Page, Richard


Flight, Howard
Paice, James


Forth, Rt Hon Eric
Paterson, Owen


Fowler, Rt Hon Sir Norman
Prior, David


Fox, Dr Liam
Redwood, Rt Hon John


Fraser, Christopher
Robathan, Andrew


Gale, Roger
Robertson, Laurence (Tewk'b'ry)


Garnier, Edward
Roe, Mrs Marion (Broxbourne)


Gibb, Nick
Ross, William (E Lond'y)


Gill, Christopher
Rowe, Andrew (Faversham)


Gillan, Mrs Cheryl
Ruffley, David


Gorman, Mrs Teresa
St Aubyn, Nick


Gray, James
Sayeed, Jonathan


Green, Damian
Shephard, Rt Hon Mrs Gillian





Shepherd, Richard (Aldridge)
Trend, Michael


Simpson, Keith (Mid-Norfolk)
Tyrie, Andrew


Soames, Nicholas
Viggers, Peter


Spelman, Mrs Caroline
Walter, Robert


Spicer, Sir Michael
Wardle, Charles


Spring, Richard
Wells, Bowen


Stanley, Rt Hon Sir John
Whitney, Sir Raymond


Steen, Anthony
Whittingdale, John


Streeter, Gary
Widdecombe, Rt Hon Miss Ann


Swayne, Desmond
Willetts, David


Syms, Robert
Wilshire, David


Tapsell, Sir Peter
Winterton, Nicholas (Macclesfield)


Taylor, Ian (Esher & Walton)
Woodward, Shaun


Taylor, John M (Solihull)
Yeo, Tim


Taylor, Sir Teddy
Young, Rt Hon Sir George


Temple-Morris, Peter



Thompson, William
Tellers for the Ayes:


Townend, John
Mr. James Cran and


Tredinnick, David
Mr. Nigel Waterson.




NOES


Abbott, Ms Diane
Cann, Jamie


Adams, Mrs Irene (Paisley N)
Caplin, Ivor


Ainger, Nick
Casale, Roger


Allan, Richard (Shef'ld Hallam)
Caton, Martin


Allen, Graham (Nottingham N)
Cawsey, Ian


Anderson, Donald (Swansea E)
Chapman, Ben (Wirral S)


Anderson, Janet (Rossendale)
Chaytor, David


Armstrong, Ms Hilary
Chidgey, David


Ashdown, Rt Hon Paddy
Chisholm, Malcolm


Ashton, Joe
Clapham, Michael


Atkins, Charlotte
Clark, Dr Lynda (Edinburgh Pentlands)


Austin, John



Ballard, Mrs Jackie
Clark, Paul (Gillingham)


Banks, Tony
Clarke, Charles (Norwich S)


Barnes, Harry
Clarke, Eric (Midlothian)


Barron, Kevin
Clarke, Rt Hon Tom (Coatbridge)


Battle, John
Clarke, Tony (Northampton S)


Bayley, Hugh
Clwyd, Ann


Beard, Nigel
Coaker, Vernon


Beckett, Rt Hon Mrs Margaret
Coffey, Ms Ann


Bell, Stuart (Middlesbrough)
Cohen, Harry


Benn, Rt Hon Tony
Coleman, Iain (Hammersmith)


Bennett, Andrew F
Colman, Tony (Putney)


Benton, Joe
Cook, Frank (Stockton N)


Best, Harold
Cooper, Yvette


Betts, Clive
Corbett, Robin


Blackman, Liz
Corbyn, Jeremy


Blears, Ms Hazel
Corston, Ms Jean


Boateng, Paul
Cotter, Brian


Borrow, David
Cousins, Jim


Bradley, Keith (Withington)
Cox, Tom


Bradshaw, Ben
Cranston, Ross


Brand, Dr Peter
Crausby, David


Breed, Colin
Cryer, Mrs Ann (Keighley)


Brinton, Mrs Helen
Cryer, John (Hornchurch)


Brown, Rt Hon Gordon (Dunfermline E)
Cunningham, Jim (Cov'try S)



Cunningham, Ms Roseanna (Perth)


Brown, Rt Hon Nick (Newcastle E)



Brown, Russell (Dumfries)
Dafis, Cynog


Browne, Desmond (Kilmarnock)
Dalyell, Tam


Bruce, Malcolm (Gordon)
Darling, Rt Hon Alistair


Buck, Ms Karen
Darvill, Keith


Burden, Richard
Davey, Edward (Kingston)


Burgon, Colin
Davey, Valerie (Bristol W)


Burnett, John
Davidson, Ian


Burstow, Paul
Davies, Rt Hon Denzil (Llanelli)


Butler, Christine
Davies, Geraint (Croydon C)


Byers, Stephen
Davis, Terry (B'ham Hodge H)


Cabom, Richard
Dawson, Hilton


Campbell, Alan (Tynemouth)
Dean, Mrs Janet


Campbell, Mrs Anne (C'bridge)
Denham, John


Campbell, Menzies (NE Fife)
Dewar, Rt Hon Donald


Campbell, Ronnie (Blyth V)
Dismore, Andrew


Campbell-Savours, Dale
Dobson, Rt Hon Frank


Canavan, Dennis
Donohoe, Brian H






Doran, Frank
Ingram, Adam


Dowd, Jim
Jackson, Ms Glenda (Hampstead)


Drew, David
Jackson, Helen (Hillsborough)


Drown, Ms Julia
Jamieson, David


Dunwoody, Mrs Gwyneth
Jenkins, Brian (Tamworth)


Eagle, Angela (Wallasey)
Jones, Barry (Alyn & Deeside)


Efford, Clive
Jones, Ms Fiona (Newark)


Ellman, Ms Louise
Jones, Helen (Warrington N)


Ennis, Jeff
Jones, leuan Wyn (Ynys Môn)


Etherington, Bill
Jones, Ms Jenny (Wolverh'ton SW)


Ewing, Mrs Margaret



Fearn, Ronnie
Jones, Dr Lynne (Selly Oak)


Field, Rt Hon Frank
Jones, Nigel (Cheltenham)


Fitzpatrick, Jim
Kaufman, Rt Hon Gerald


Fitzsimons, Lorna
Keeble, Ms Sally


Flynn, Paul
Keen, Alan (Feltham & Heston)


Follett, Barbara
Keen, Mrs Ann (Brentford)


Foster, Rt Hon Derek
Keetch, Paul


Foster, Don (Bath)
Kennedy, Jane (Wavertree)


Foster, Michael Jabez (Hastings)
Khabra, Piara S


Foster, Michael John (Worcester)
Kidney, David


Foulkes, George
Kilfoyle, Peter


Fyfe, Maria
King, Andy (Rugby & Kenilworth)


Galbraith, Sam
King, Ms Oona (Bethnal Green)


Galloway, George
Ladyman, Dr Stephen


Gapes, Mike
Lawrence, Ms Jackie


Gardiner, Barry
Laxton, Bob


George, Andrew (St Ives)
Lepper, David


George, Bruce (Walsall S)
Leslie, Christopher


Gerrard, Neil
Lewis, Ivan (Bury S)


Gibson, Dr Ian
Liddell, Mrs Helen


Gilroy, Mrs Linda
Linton, Martin


Godman, Dr Norman A
Livingstone, Ken


Godsiff, Roger
Livsey, Richard


Goggins, Paul
Lloyd, Tony (Manchester C)


Golding, Mrs Llin
Lock, David


Gordon, Mrs Eileen
McAllion, John


Gorrie, Donald
McAvoy, Thomas


Graham, Thomas
McCafferty, Ms Chris


Griffiths, Jane (Reading E)
McCartney, Ian (Makerfield)


Griffiths, Nigel (Edinburgh S)
McDonagh, Siobhain


Griffiths, Win (Bridgend)
Macdonald, Calum


Grocott, Bruce
McDonnell, John


Grogan, John
McIsaac, Shona


Gunnell, John
Mackinlay, Andrew


Hain, Peter
McNamara, Kevin


Hall, Mike (Weaver Vale)
McNulty, Tony


Hall, Patrick (Bedford)
MacShane, Denis


Hamilton, Fabian (Leeds NE)
Mactaggart, Fiona


Hancock, Mike
McWalter, Tony


Hanson, David
Mahon, Mrs Alice


Harman, Rt Hon Ms Harriet
Mallaber, Judy


Harris, Dr Evan
Mandelson, Peter


Heal, Mrs Sylvia
Marek, Dr John


Heath, David (Somerton & Frome)
Marsden, Gordon (Blackpool S)


Henderson, Ivan (Harwich)
Marshall, David (Shettleston)


Heppell, John
Marshall, Jim (Leicester S)


Hesford, Stephen
Marshall-Andrews, Robert


Hewitt, Ms Patricia
Maxton, John


Hill, Keith
Meacher, Rt Hon Michael


Hinchiffe, David
Meale, Alan


Hoey, Kate
Michael, Alun


Hood, Jimmy
Michie, Bill (Shef'ld Heeley)


Hoon, Geoffrey
Michie, Mrs Ray (Argyll & Bute)


Hope, Phil
Milburn, Alan


Hopkins, Kelvin
Miller, Andrew


Howarth, Alan (Newport E)
Mitchell, Austin


Howarth, George (Knowsley N)
Moffatt, Laura


Howells, Dr Kim
Moonie, Dr Lewis


Hoyle, Lindsay
Moore, Michael


Hughes, Kevin (Doncaster N)
Morgan, Alasdair (Galloway)


Hughes, Simon (Southwark N)
Morgan, Ms Julie (Cardiff N)


Hurst, Alan
Morgan, Rhodri (Cardiff W)


Hutton, John
Morley, Elliot


Iddon, Dr Brian
Morris, Ms Estelle (B'ham Yardley)


Illsley, Eric
Morris, Rt Hon John (Aberavon) (Morecambe & Lunesdale)





Mountford, Kali



Mudie, George
Smith, Jacqui (Redditch)


Mullin, Chris
Smith, John (Glamorgan)


Murphy, Jim (Eastwood)
Smith, Llew (Blaenau Gwent)


Naysmith, Dr Doug
Smith, Sir Robert (W Ab'd'ns)


Norris, Dan
Snape, Peter


O'Brien, Bill (Normanton)
Soley, Clive


O'Brien, Mike (N Warks)
Starkey, Dr Phyllis


O'Hara, Edward
Steinberg, Gerry


Olner, Bill
Stevenson, George


Öpik, Lembit
Stewart, David (Inverness E)


Organ, Mrs Diana
Stewart, Ian (Eccles)


Osborne, Mrs Sandra
Stoate, Dr Howard


Pearson, Ian
Stott, Roger


Perham, Ms Linda
Strang, Rt Hon Dr Gavin


Pickthall, Colin
Stringer, Graham


Pike, Peter L
Stuart, Ms Gisela (Edgbaston)


Plaskitt, James
Stunell, Andrew


Pollard, Kerry
Sutcliffe, Gerry


Pond, Chris
Swinney, John


Pope, Greg
Taylor, Rt Hon Mrs Ann (Dewsbury)


Pound, Stephen



Powell, Sir Raymond
Taylor, Ms Dari (Stockton S)


Prentice, Ms Bridget (Lewisham E)
Taylor, Matthew (Truro)


Prentice, Gordon (Pendle)
Thomas, Gareth (Clwyd W)


Prescott, Rt Hon John
Thomas, Gareth R (Harrow W)


Primarolo, Dawn
Timms, Stephen


Purchase, Ken
Tipping, Paddy


Quin, Ms Joyce
Todd, Mark


Quinn, Lawrie (Scarborough)
Touhig, Don


Radice, Giles
Trickett, Jon


Rapson, Syd
Truswell, Paul


Raynsford, Nick
Turner, Dennis (Wolverh'ton SE)


Reed, Andrew (Loughborough)
Turner, Desmond (Kemptown)


Rendel, David
Twigg, Derek (Halton)


Robertson, Rt Hon George (Hamilton S)
Twigg, Stephen (Enfield)



Tyler, Paul


Robinson, Geoffrey (Cov'try NW)
Vaz, Keith


Roche, Mrs Barbara
Vis, Dr Rudi


Rogers, Allan
Wallace, James


Rooker, Jeff
Walley, Ms Joan


Rooney, Terry
Ward, Ms Claire


Ross, Ernie (Dundee W)
Watts, David


Rowlands, Ted
Webb, Professor Steve


Roy, Frank
Welsh, Andrew


Ruddock, Ms Joan
White, Brian


Russell, Bob (Colchester)
Whitehead, Dr Alan


Russell, Ms Christine (Chester)
Wicks, Malcolm


Ryan, Ms Joan
Williams, Rt Hon Alan (Swansea W)


Salmond, Alex
Williams, Alan W (E Carmarthen)


Sanders, Adrian
Williams, Mrs Betty (Conwy)


Savidge, Malcolm
Wills, Phil


Sawford, Phil
Wills, Michael


Sedgemore, Brian
Wilson, Brian


Shaw, Jonathan
Winnick, David


Sheerman, Barry
Winterton, Ms Rosie (Doncaster C)


Sheldon, Rt Hon Robert
Wise, Audrey


Shipley, Ms Debra
Wray, James


Short, Rt Hon Clare
Wright, Dr Tony (Cannock)


Simpson, Alan (Nottingham S)
Wright, Tony D (Gt Yarmouth)


Singh, Marsha
Wyatt, Derek


Skinner, Dennis



Smith, Rt Hon Andrew (Oxford E)
Tellers for the Noes:


Smith, Angela (Basildon)
Mr. Robert Ainsworth and


Smith, Miss Geraldine
Mr. David Clelland.

Question accordingly negatived.

It being after Ten o'clock, THE CHAIRMAN put the remaining Question required by the Order [14 July] to be put at that hour.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 370, Noes 141.

Division No. 58]
[10.15 pm


AYES


Abbott, Ms Diane
Colman, Tony (Putney)


Adams, Mrs Irene (Paisley N)
Cooper, Yvette


Ainger, Nick
Corbett, Robin


Ainsworth, Robert (Cov'try NE)
Corbyn, Jeremy


Allan, Richard (Shef'ld Hallam)
Corston, Ms Jean


Allen, Graham (Nottingham N)
Cotter, Brian


Anderson, Donald (Swansea E)
Cousins, Jim


Anderson, Janet (Rossendale)
Cox, Tom


Armstrong, Ms Hilary
Cranston, Ross


Ashdown, Rt Hon Paddy
Crausby, David


Ashton, Joe
Cryer, Mrs Ann (Keighley)


Atkins, Charlotte
Cryer, John (Hornchurch)


Austin, John
Cunningham, Jim (Cov'try S)


Ballard, Mrs Jackie
Cunningham, Ms Roseanna (Perth)


Banks, Tony



Barnes, Harry
Dafis, Cynog


Battle, John
Dalyell, Tam


Bayley, Hugh
Darling, Rt Hon Alistair


Beard, Nigel
Darvill, Keith


Beckett, Rt Hon Mrs Margaret
Davey, Edward (Kingston)


Benn, Rt Hon Tony
Davey, Valerie (Bristol W)


Bennett, Andrew F
Davidson, Ian


Benton, Joe
Davies, Rt Hon Denzil (Llanelli)


Best, Harold
Davies, Geraint (Croydon C)


Betts, Clive
Davis, Terry (B'ham Hodge H)


Blackman, Liz
Dawson, Hilton


Blears, Ms Hazel
Dean, Mrs Janet


Boateng, Paul
Denham, John


Borrow, David
Dewar, Rt Hon Donald


Bradley, Keith (Withington)
Dismore, Andrew


Bradshaw, Ben
Dobson, Rt Hon Frank


Brand, Dr Peter
Donohoe, Brian H


Breed, Colin
Doran, Frank


Brinton, Mrs Helen
Drew, David


Brown, Rt Hon Gordon (Dunfermline E)
Drown, Ms Julia



Dunwoody, Mrs Gwyneth


Brown, Rt Hon Nick (Newcastle E)
Eagle, Angela (Wallasey)


Brown, Russell (Dumfries)
Efford, Clive


Browne, Desmond (Kilmarnock)
Ellman, Ms Louise


Bruce, Malcolm (Gordon)
Ennis, Jeff


Buck, Ms Karen
Etherington, Bill


Burden, Richard
Ewing, Mrs Margaret


Burgon, Colin
Fearn, Ronnie


Burnett, John
Field, Rt Hon Frank


Burstow, Paul
Fitzpatrick, Jim


Butler, Christine
Fitzsimons, Lorna


Byers, Stephen
Flynn, Paul


Caborn, Richard
Follett, Barbara


Campbell, Alan (Tynemouth)
Foster, Rt Hon Derek


Campbell, Mrs Anne (C'bridge)
Foster, Don (Bath)


Campbell, Menzies (NE Fife)
Foster, Michael Jabez (Hastings)


Campbell, Ronnie (Blyth V)
Foster, Michael John (Worcester)


Campbell-Savours, Dale
Foulkes, George


Cann, Jamie
Galbraith, Sam


Caplin, Ivor
Galloway, George


Casale, Roger
Gapes, Mike


Caton, Martin
Gardiner, Barry


Cawsey, Ian
George, Andrew (St Ives)


Chapman, Ben (Wirral S)
George, Bruce (Walsall S)


Chidgey, David
Gerrard, Neil


Chisholm, Malcolm
Gibson, Dr Ian


Clapham, Michael
Gilroy, Mrs Linda


Clark, Dr Lynda (Edinburgh Pentlands)
Godman, Dr Norman A



Godsiff, Roger


Clark, Paul (Gillingham)
Goggins, Paul


Clarke, Charles (Norwich S)
Golding, Mrs Llin


Clarke, Eric (Midlothian)
Gordon, Mrs Eileen


Clarke, Tony (Northampton S)
Gorrie, Donald


Clwyd, Ann
Graham, Thomas


Coaker, Vernon
Griffiths, Jane (Reading E)


Coffey, Ms Ann
Griffiths, Nigel (Edinburgh S)


Cohen, Harry
Griffiths, Win (Bridgend)


Coleman, Iain (Hammersmith)
Grocott, Bruce





Grogan, John
Mackinlay, Andrew


Gunnell, John
McNamara, Kevin


Hain, Peter
McNulty, Tony


Hall, Mike (Weaver Vale)
MacShane, Denis


Hall, Patrick (Bedford)
Mactaggart, Fiona


Hamilton, Fabian (Leeds NE)
McWalter, Tony


Hancock, Mike
Mahon, Mrs Alice


Hanson, David
Mallaber, Judy


Harman, Rt Hon Ms Harriet
Mandelson, Peter


Heal, Mrs Sylvia
Marek, Dr John


Heath, David (Somerton & Frome)
Marsden, Gordon (Blackpool S)


Henderson, Ivan (Harwich)
Marshall, David (Shettleston)


Heppell, John
Marshall, Jim (Leicester S)


Hesford, Stephen
Marshall-Andrews, Robert


Hewitt, Ms Patricia
Maxton, John


Hill, Keith
Meacher, Rt Hon Michael


Hinchliffe, David
Meale, Alan


Hoey, Kate
Michael, Alun


Hood, Jimmy
Michie, Bill (Shef'ld Heeley)


Hoon, Geoffrey
Michie, Mrs Ray (Argyll & Bute)


Hope, Phil
Milburn, Alan


Hopkins, Kelvin
Miller, Andrew


Howarth, Alan (Newport E)
Mitchell, Austin


Howarth, George (Knowsley N)
Moffatt, Laura


Howells, Dr Kim
Moonie, Dr Lewis


Hoyle, Lindsay
Moore, Michael


Hughes, Kevin (Doncaster N)
Morgan, Alasdair (Galloway)


Hughes, Simon (Southwark N)
Morgan, Ms Julie (Cardiff N)


Hurst, Alan
Morgan, Rhodri (Cardiff W)


Hutton, John
Morley, Elliot


Iddon, Dr Brian
Morris, Ms Estelle (B'ham Yardley)


Illsley, Eric
Mountford, Kali


Ingram, Adam
Mudie, George


Jackson, Ms Glenda (Hampstead)
Mullin, Chris


Jackson, Helen (Hillsborough)
Murphy, Jim (Eastwood)


Jenkins, Brian (Tamworth)
Naysmith, Dr Doug


Jones, Barry (Alyn & Deeside)
Norris, Dan


Jones, Ms Fiona (Newark)
O'Brien, Bill (Normanton)


Jones, Helen (Warrington N)
O'Brien, Mike (N Warks)


Jones, leuan Wyn (Ynys Môn)
O'Hara, Edward


Jones, Ms Jenny (Wolverh'ton SW)
Olner, Bill



Öpik, Lembit


Jones, Jon Owen (Cardiff C)
Organ, Mrs Diana


Jones, Dr Lynne (Selly Oak)
Osborne, Mrs Sandra


Jones, Nigel (Cheltenham)
Pearson, Ian


Kaufman, Rt Hon Gerald
Pendry, Tom


Keeble, Ms Sally
Perham, Ms Linda


Keen, Alan (Feltham & Heston)
Pickthall, Colin


Keen, Mrs Ann (Brentford)
Pike, Peter L


Keetch, Paul
Plaskitt, James


Kennedy, Jane (Wavertree)
Pollard, Kerry


Khabra, Piara S
Pond, Chris


Kidney, David
Pope, Greg


Kilfoyle, Peter
Pound, Stephen


King, Andy (Rugby & Kenilworth)
Powell, Sir Raymond


King, Ms Oona (Bethnal Green)
Prentice, Ms Bridget (Lewisham E)


Ladyman, Dr Stephen
Prentice, Gordon (Pendle)


Lawrence, Ms Jackie
Prescott, Rt Hon John


Laxton, Bob
Primarolo, Dawn


Lepper, David
Purchase, Ken


Leslie, Christopher
Quin, Ms Joyce


Lewis, Ivan (Bury S)
Quinn, Lawrie (Scarborough)


Liddell, Mrs Helen
Radice, Giles


Linton, Martin
Rapson, Syd


Livingstone, Ken
Raynsford, Nick


Livsey, Richard
Reed, Andrew (Loughborough)


Lloyd, Tony (Manchester C)
Rendel, David


Lock, David
Robertson, Rt Hon George (Hamilton S)


McAllion, John



McAvoy, Thomas
Robinson, Geoffrey (Cov'try NW)


McCafferty, Ms Chris
Roche, Mrs Barbara


McCartney, Ian (Makerfield)
Rooker, Jeff


McDonagh, Siobhain
Rooney, Terry


Macdonald, Calum
Ross, Ernie (Dundee W)


McDonnell, John
Rowlands, Ted


McIsaac, Shona
Roy, Frank






Ruddock, Ms Joan
Taylor, Matthew (Truro)


Russell, Bob (Colchester)
Thomas, Gareth (Clwyd W)


Russell, Ms Christine (Chester)
Thomas, Gareth R (Harrow W)


Ryan, Ms Joan
Timms, Stephen


Salmond, Alex
Tipping, Paddy


Sanders, Adrian
Todd, Mark


Savidge, Malcolm
Touhig, Don


Sawford, Phil
Trickett, Jon


Shaw, Jonathan
Truswell, Paul


Sheerman, Barry
Turner, Dennis (Wolverh'ton SE)


Sheldon, Rt Hon Robert
Turner, Desmond (Kemptown)


Shipley, Ms Debra
Twigg, Derek (Halton)


Short, Rt Hon Clare
Twigg, Stephen (Enfield)


Simpson, Alan (Nottingham S)
Tyler, Paul


Singh, Marsha
Vaz, Keith


Skinner, Dennis
Vis, Dr Rudi


Smith, Rt Hon Andrew (Oxford E)
Wallace, James


Smith, Angela (Basildon)
Walley, Ms Joan


Smith, Miss Geraldine (Morecambe & Lunesdale)
Ward, Ms Claire



Watts, David


Smith, Jacqui (Redditch)
Welsh, Andrew


Smith, John (Glamorgan)
White, Brian


Smith, Llew (Blaenau Gwent)
Whitehead, Dr Alan


Smith, Sir Robert (W Ab'd'ns)
Wicks, Malcolm


Snape, Peter
Williams, Rt Hon Alan (Swansea W)


Soley, Clive



Starkey, Dr Phyllis
Williams, Alan W (E Carmarthen)


Steinberg, Gerry
Williams, Mrs Betty (Conwy)


Stevenson, George
Willis, Phil


Stewart, David (Inverness E)
Wills, Michael


Stewart, Ian (Eccles)
Wilson, Brian


Stoate, Dr Howard
Winnick, David


Stott, Roger
Winterton, Ms Rosie (Doncaster C)


Strang, Rt Hon Dr Gavin
Wise, Audrey


Stringer, Graham
Wray, James


Stuart, Ms Gisela (Edgbaston)
Wright, Dr Tony (Cannock)


Stunell, Andrew
Wright, Tony D (Gt Yarmouth)


Sutcliffe, Gerry
Wyatt, Derek


Swinney, John



Taylor, Rt Hon Mrs Ann (Dewsbury)
Tellers for the Ayes:



Mr. David Clelland and


Taylor, Ms Dari (Stockton S)
Mr. Jim Dowd.




NOES


Ainsworth, Peter (E Surrey)
Day, Stephen


Amess, David
Dorrell, Rt Hon Stephen


Ancram, Rt Hon Michael
Duncan, Alan


Arbuthnot, James
Duncan Smith, Iain


Atkinson, Peter (Hexham)
Emery, Rt Hon Sir Peter


Baldry, Tony
Evans, Nigel


Beggs, Roy (E Antrim)
Faber, David


Bercow, John
Fabricant, Michael


Beresford, Sir Paul
Fallon, Michael


Blunt, Crispin
Flight, Howard


Body, Sir Richard
Forth, Rt Hon Eric


Boswell, Tim
Fowler, Rt Hon Sir Norman


Bottomley, Rt Hon Mrs Virginia
Fox, Dr Liam


Brady, Graham
Fraser, Christopher


Brazier, Julian
Gale, Roger


Brooke, Rt Hon Peter
Garnier, Edward


Browning, Mrs Angela
Gibb, Nick


Bruce, Ian (S Dorset)
Gill, Christopher


Burns, Simon
Gillan, Mrs Cheryl


Butterfill, John
Gorman, Mrs Teresa


Chapman, Sir Sydney (Chipping Barnet)
Gray, James



Green, Damian


Chope, Christopher
Greenway, John


Clappison, James
Grieve, Dominic


Clark, Dr Michael (Rayleigh)
Gummer, Rt Hon John


Clifton-Brown, Geoffrey
Hague, Rt Hon William


Collins, Tim
Hamilton, Rt Hon Sir Archie


Colvin, Michael
Hammond, Philip


Cormack, Sir Patrick
Hawkins, Nick


Curry, Rt Hon David
Heald, Oliver


Davis, Rt Hon David (Haltemprice)
Heathcoat-Amory, Rt Hon David


Davies, Quentin (Grantham)
Hogg, Rt Hon Douglas





Horam, John
Ross, William (E Lond'y)


Howarth, Gerald (Aldershot)
Ruffley, David


Hunter, Andrew
St Aubyn, Nick


Jack, Rt Hon Michael
Sayeed, Jonathan


Jackson, Robert (Wantage)
Shephard, Rt Hon Mrs Gillian


Jenkin, Bernard (N Essex)
Shepherd, Richard (Aldridge)


Johnson Smith, Rt Hon Sir Geoffrey
Simpson, Keith (Mid-Norfolk)



Soames, Nicholas


Key, Robert
Spicer, Sir Michael


King, Rt Hon Tom (Bridgwater)
Spring, Richard


Laing, Mrs Eleanor
Stanley, Rt Hon Sir John


Leigh, Edward
Steen, Anthony


Letwin, Oliver
Streeter, Gary


Lewis, Dr Julian (New Forest E)
Swayne, Desmond


Lidington, David
Syms, Robert


Lilley, Rt Hon Peter
Tapsell, Sir Peter


Lloyd, Rt Hon Sir Peter (Fareham)
Taylor Ian (Esher & Walton)


Loughton,Tim
Taylor, John M (Solihull)


Luff, Peter
Taylor, Sir Teddy


Lyell, Rt Hon Sir Nicholas
Temple-Morris, Peter


MacGregor, Rt Hon John
Thompson, William


MacKay, Andrew
Townend, John


Maclean, Rt Hon David
Tredinick, David


McLoughlin, Patrick
Trend, Michael


Madel, Sir David
Tyrie, Andrew


Malins, Humfrey
Viggers, Peter


Maples, John
Walter, Robert


Mawhinney, Rt Hon Dr Brian
Wardle, Charles


May, Mrs Theresa
Waterson, Nigel


Merchant, Piers
Wells, Bowen


Moss, Malcolm
Whitney, Sir Raymond



Widdecombe, Rt Hon Miss Ann


Nicholls, Patrick
Willetts, David


Norman, Archie
Wilshire, David


Page, Richard
Winterton, Nicholas (Macclesfield)


Paice, James
Woodward, Shaun


Paterson, Owen
Yeo, Tim


Prior, David
Young, Rt Hon Sir George


Redwood, Rt Hon John



Robathan, Andrew
Tellers for the Noes:


Robertson, Laurence (Tewk'b'ry)
Mr. James Cran and


Roe, Mrs Marion (Broxbourne)
Mr. John Whittingdale.

Question accordingly agreed to.

Clause 15 ordered to stand part of the Bill.

To report progress and ask leave to sit again.—[Mr. Robert Ainsworth.]

Committee report progress; to sit again tomorrow.

Royal Assent

Mr. Deputy Speaker (Sir Alan Haselhurst): I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Acts:

National Health Service (Private Finance) Act 1997
Southampton International Boat Show Act 1997
Imperial College Act 1997

ESTIMATES

It being after Ten o'clock, MR. DEPUTY SPEAKER, pursuant to Standing Order No. 55 (Questions on voting of estimates, &c.), put the Question on the total amount of outstanding estimates.

SUPPLEMENTARY ESTIMATES 1997–98

Resolved,
That a supplementary sum, not exceeding £66,285,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges for Civil Services which will come in course of payment for the year ending on 31st March 1998, as set out in House of Commons Paper No. 65.

Ordered,
That a Bill be brought in on the foregoing resolutions: And that the Chairman of Ways and Means, Mr. Chancellor of the Exchequer, Mr. Alistair Darling, Mr. Geoffrey Robinson, Mrs. Helen Liddell and Dawn Primarolo do prepare and bring it in.

CONSOLIDATED FUND (APPROPRIATION) BILL

Dawn Primarolo accordingly presented a Bill to apply certain sums out of the Consolidated Fund to the service of the year ending on 31st March 1998, and to appropriate the supplies granted in this Session of Parliament: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed [Bill 46].

SELECT COMMITTEE ON PUBLIC ADMINISTRATION

Ordered,
That Standing Order No. 146 (Select Committee on Public Administration) be amended, in line 8, by leaving out the word 'nine' and inserting the word 'eleven'.—[Mrs. Ann Taylor.]

EUROPEAN LEGISLATION

Ordered,
That Mr. Norman Baker, Ms Hazel Blears, Mr. Ben Bradshaw, Mr. Russell Brown, Mr. Roger Casale, Mr. William Cash, Mrs. Margaret Ewing, Mrs. Linda Gilroy, Mr. Jimmy Hood, Ms Jennifer Jones, Mr. Jim Marshall, Mrs. Anne McGuire, Mr. Bill Rammell, Mr. Anthony Steen, Mr. Andrew Tyrie and Mr. Shaun Woodward be members of the Select Committee on European Legislation.—[Mr. Mudie.]

Insolvency

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert Ainsworth.]

Mr. Austin Mitchell: It is a pleasure to be able to discuss the subject of insolvency. The amazing lack of interest in the subject is testimony to the fact that Members of Parliament are so much better paid these days; this would not have happened if they were paid at the same levels as when I was a lad.
This is an important subject that should cause us a great deal of concern. The issue of insolvency, liquidation and bankruptcy is emotive. It is fraught with concern, anxiety and agony for those involved—it is traumatic for them—and that is exactly why the area should be well regulated by scrupulous practitioners who can be called to account and owe a duty of care to those involved. Such practitioners should work to predictable, known rules; they should work openly and be subject to appeal and control to protect the vulnerable. None of those characteristics applies to insolvency as it is presently regulated.
The practitioners work in the dark; that darkness is compounded for the victims of insolvency. There is no effective independent regulation—indeed, there is no effective regulation. There are 2,000 insolvency practitioners in this country and, for that small number, there are eight regulators, including the Department of Trade and Industry and the Society of Practitioners of Insolvency—a trade association rather than a regulator. There are far too many regulators. They overlap and trample on each other's feet; their responsibilities are not clear. It is difficult to secure effective regulation among such a plethora of regulators.
The framework of regulation consists of the Mafia regulating the Mafia: the practitioners regulate themselves in their own interests, without effective independent control. There is nothing to cause the public interest to intrude into that area.
Even the Department of Trade and Industry working party which, as my hon. Friend the Minister will no doubt remind me, is considering the issue, is the Mafia regulating the Mafia. The people who make up that working party do not include the victims of insolvency—those who have gone under, those who have suffered the consequences, or those who have been aggrieved by the insolvency process. The working party is essentially composed of the practitioners.
I hope that my hon. Friend will be aware of the blandishments of that working party and bear in mind what it is. It is the industry speaking for itself and almost certainly telling my hon. Friend that all is for the best in the best of all possible insolvency worlds; in fact, it is not. If it is to be effective, the inquiry should be independent and presided over by a High Court judge; in fact, it is chaired by a representative of the Law Society and includes representatives of all the other regulators—the trade associations. None of those who have suffered, including the employees of companies that have gone under, have been included. The working party does not hold public hearings; effectively, it operates in secrecy. It is a sham.
The main legislation in the area, the Insolvency Acts of 1985 and 1986, was meant to provide ways of rescuing companies. It was meant to protect the investor, the shareholder and the creditor. In fact, it has become a series of Acts for the protection of the accountants because it gives them, as corporate undertakers, a licence effectively to print money in the fees they levy for insolvency work—work in which the banks call the shots and the accountants enrich themselves.
By serving the dominant interest of the banks, the accountants have obtained the statutory monopoly of audit. When something goes wrong with the audit, they also operate an effective monopoly of the insolvency work that results from bad audits and bad ways of running companies. They get the fees for creating the mess and the fees for clearing it up. One cannot think of a better monopoly for self-enrichment.
The fees are huge. Much of the work is done by unqualified staff, but the fees charged are £100 per hour for some grades and £300 to £500 per hour for partners. When the Social Security Committee studied the Maxwell liquidation, in 1993, when the bill for that liquidation was only £50 million—it has increased since—it found that Robson Rhodes was charging between £111 and £174 per hour, Arthur Andersen was charging between £90 and £153 per hour, and Price Waterhouse was charging between £120 and £190 per hour. That is how some of those astronomical fees are calculated.
The fees so far in the Bank of Credit and Commerce International insolvency amount to $281 million for Deloitte and Touche. It is wonderful work if you can get it—far more profitable than designing Eurofighters, building cars or producing other things of value to the consumer. The insolvency income of the major accountancy firms, which employ 40 per cent. of the insolvency practitioners, is huge. Even two years ago, Coopers and Lybrand earned £53 million a year, KPMG earned £43 million a year and Ernst and Young earned £44 million a year—and those are data that those firms provided to the accountancy press.
Whoever loses in an insolvency, the practitioners win—that is the name of the game. I cite some instances from my experience. A Mrs. Askew, who had the lease of two pubs in Lincoln—a fairly wealthy lady, who was ill and, I believe, was inattentive to the financial side of the business—was sued by a wine merchant for £4,400 in unpaid bills. The liquidator was put in. The costs and fees of that liquidation, for a bill of £4,400, came to £120,000. When I asked the Institute of Chartered Accountants why the figure was so huge, I was told that Mrs. Askew was to blame because she did not co-operate with the trustee. That is a huge bill, given that she was in hospital for much of the time she was accused of non-co-operation. It is a ludicrous charge.
Practitioners are in a wonderful position and the big accountancy houses win both ways. The banks, which are notorious for thrusting umbrellas upon us when the weather is dry and snatching them back as soon as it rains, have most of us in a tight grip—I will make it no more vivid than that. If a firm of accountants put in by a bank

to report on a business recommends liquidation, the same firm's insolvency arm gets the liquidation work. That is a monstrous vested interest and places constant pressure to recommend liquidation.
The classic instance—about which I have had a long correspondence with the DTI and the regulators—is the case of J. S. Bass in Manchester in 1988. Barclays bank put in Ernst and Young to report on the business. It did a survey which took all of 48 hours—it is called a quick and dirty survey in the trade. It looked at the accounts, which effectively can be made to say anything. It did not look at the order book or the assets—this was an asset-rich company—and overestimated the losses of the company by a factor of five. It recommended that the firm be put into receivership.
The firm was put into receivership by the insolvency arm of Ernst and Young, which then sold the factory and the property at less than agreed prices—some of it, apparently, to clients of the bank—and found a surplus at the end of £1.2 million. But that had all gone in fees by then, so, effectively, there was no surplus. The insolvency practitioner is guaranteed his share of the operation.
What is more, the bank tried to take out a bankruptcy order on the managing director, Barry Chapman, to shut him up because of his objections to the operation. Professor Tony Christie of Salford university complained about the behaviour of Ernst and Young in a letter to his Member of Parliament, Sir Fergus Montgomery. Sir Fergus passed it on to Ernst and Young, which then took out a writ against Christie to shut him up and to stop his accusations against Ernst and Young. Here is an academic facing the might of one of the big six. It is easy to imagine how the balance of power will go. None of this had any effect on the inquiry by the DTI or the regulators. There was no satisfaction, and the business smells curiously.
These are murky waters. Here is a vested interest recommending liquidation to the bank and then getting the insolvency business. The banks should not do this. If they try to do it, the Government should prohibit it. The Royal Bank of Scotland, I am pleased to say, has announced that it will not appoint the same firm to do the financial inquiry and the insolvency work. It has found that it has been able to reduce the fees for insolvency work by 40 per cent. because it now has competitive bids from practitioners. It has reduced by 60 per cent. the number of receiverships it deals with, by the simple expedient of refusing to use the same firm.
The practitioners owe a duty of care only to the interests which put them in—usually the bank. They have no responsibility to other creditors, whose interests can be ignored because the practitioners and the interests which put them in effectively control the flow of information to other creditors and to the courts. The whole business is secretive and goes on behind closed doors. There is no requirement to publish the bids that the receiver is soliciting for assets or to ensure that the process is carried out fairly. The process should be open to ensure that it is above board. It pays receivers not to rescue a company, but to keep the procedure going for ever—because there are fees whatever happens.
It would be much easier if the auditor's papers were required to be available to the insolvency practitioner,


because the auditor has done the work and presumably knows where the assets are, where the problems are and where the creditors are. All that work must be done again for large fees by the insolvency practitioner.
The fact that that is done behind closed doors leads to doubtful, murky deals. Euroscan is a Nottingham-based printing company. An offer was made to buy the firm from the receiver for £320,000. The receiver eventually sold it for half that sum to a company formed by the receiver in which he was a major shareholder. That practice is not just curious; it is wrong.
In another notorious insolvency case a few years back, Corporate Communications was put into receivership. The receivership was operated by a firm that had acted as consultant to Corporate Communications. The receiver sold it back to the directors at half the valuation and got the fees for the operation. The creditors were left to whistle.
The list goes on. No wonder there are 500 to 600 complaints every year about insolvencies. Satisfaction of those complaints is rare indeed, because there is no way of securing satisfaction or of disciplining or controlling the practitioners. The heftiest disciplinary measure that I have heard of is the penalty imposed by the institute on Jordan and Stone in the Polly Peck liquidation. Against the guidelines, Coopers and Lybrand took on the insolvency work, even though it was working for Polly Peck in the Channel islands. When that was discovered, the firm claimed that its organisational records were not adequate for it to tell that it was working for Polly Peck. Coopers and Lybrand sells computer systems to other businesses, yet it did not know that. The machinery trundled into gear and a massive fine of £1,000 was imposed on each firm. The fees on that insolvency were between £15 million and £20 million. The fine for infringing the guidelines must have terrified the firms.
Everything is decided by private law, by discussion with the firms in which the shareholders play little part. They can complain, but they have no right of appeal. There is an ombudsman, but he is an industry figure paid by the professional body. I am sure that matters will improve under my hon. Friend the Minister for Competition and Consumer Affairs, but until now it has been no use protesting to the Department of Trade and Industry, because the Department has simply relayed the complaints back to the professional bodies.
The fees charade goes on. I can cite examples from the Bankruptcy Association. A plumber was bankrupted for non-payment of VAT. The bill was £2,100; the liquidation fees were £15,000. In another case, the accountants admitted doing six hours' work and charged £2,500 for it. In a further case, assets of £2.1 million were realised and the fees for realising that sum were £850,000.
I hope that my hon. Friend will take a cold, hard look at the area. I know that there will be fewer bankruptcies under Labour, because a Labour Government will run the economy for growth and expansion and improve the business climate.
I am not quite so sure about Eddie George as Governor of the Bank of England. His role in the matter worries me a little. He seems to be a master of creating the conditions for more bankruptcies by squeezing deflation, which he calls stability. I am sure that there will be economic problems, but I hope that they will not be as severe as under the previous Government.

Mr. John Burnett: There was an Adjournment debate on an analogous matter last Thursday, when the right hon. Member for Maidstone and The Weald (Miss Widdecombe) raised similar points. I suggested then that there should be a system analogous to that available to the public against lawyers for taxation of insolvency practitioners' bills and fees. The Financial Secretary said that she would look into that. Perhaps the hon. Member for Great Grimsby (Mr. Mitchell) will bear that in mind, and perhaps the Minister would consider a system whereby the taxation of the fees of insolvency practitioners would be available to the public, particularly creditors.

Mr. Mitchell: There should be some system of appeal so that people can contest the fees.
I hope that the Labour Government will look afresh at this matter. We are committed by our manifesto to encouraging a culture of rescue so that firms may keep operating rather than being looted and pillaged by insolvency practitioners. Why can we not have in this country something like chapter 11 in the United States, whereby a firm has 90 days in which to reorganise? Why can we not introduce a requirement that no creditor shall appoint any receiver immediately, and that companies shall have 28 days in which to secure additional resources?
Why can we not ban the accountancy firms that compile reports on companies from also taking on the insolvency work? Why cannot all plc receivers be forced to publish meaningful information about their affairs, such as the number of cases they have handled, and their fees? Why can we not require banks to publish the number of companies that they have placed in receivership? That might act as a deterrent and ensure that they think about those issues.
The Government are committed to many of those changes and to a more sympathetic approach. I hope that they will look at the real solution to the problem of insolvency: an effective independent regulator to represent the public interest. We are providing independent regulation in the financial sector, but that will be ineffective unless regulation is extended to accountancy, audit and insolvency where the need is greater. Only a regulator such as the Securities and Exchange Commission in the United States can call people to account, establish an appeals process and ensure that the operation is run in the interests not of the insolvency industry and its practitioners but of the public and the wider community.

Mr. Keith Vaz: I warmly congratulate my hon. Friend the Member for Great Grimsby (Mr. Mitchell) on securing the debate and on raising this important issue. I re-emphasise the points that he made about the liquidation of BCCI. BCCI closed six years ago on 5 July, and my hon. Friend mentioned the huge fees that the liquidators, Deloitte and Touche, accumulated. I am certain that that liquidation merits a full investigation by the Department of Trade and Industry—
even the charming Mr. Desmond Flynn cannot equal the massed ranks of a firm such as Deloitte and Touche. I hope that something can be done.
We recently met the Minister to discuss the issue, and he was very sympathetic to our cause. He is one of the most dynamic and effective Ministers in the new Government. If anyone can do something about the actions of Deloitte and Touche in the liquidation of BCCI, he can. I urge the Minister to hold an inquiry, and I shall write to the Chairman of the Trade and Industry Select Committee asking him to do the same. I hope that the Minister will have some positive news tonight about that matter.

The Minister for Competition and Consumer Affairs (Mr. Nigel Griffiths): I congratulate my hon. Friend the Member for Great Grimsby (Mr. Mitchell) on securing this debate on a matter that is of great interest to many within and outside the House. My hon. Friend is well known for his commitment to effective regulation in the accountancy and insolvency professions. Therefore, I listened to his speech very carefully
Insolvency is, by its nature, a situation in which there are many losers. Thankfully, relatively few individuals and companies will experience it. In 1995–96, 18,000 companies went into some form of insolvency procedure compared with a total of more than 1 million live companies. It is recognised that most failure is honest: people have tried their best, but the business has not worked for any number of reasons, such as changes in the market or in economic circumstances and other misfortunes that befall entrepreneurs across the spectrum. So the losers deserve, and have, our sympathy. They are the suppliers and other creditors—and the employees, many of whom have given years of loyal service. We must not forget the entrepreneurs and their families.
Joseph Chamberlain said in 1883 that the job of insolvency procedures is to
protect the salvage and diminish the risk of wreck.
Those words are as true today as they were when first said. The job of official receivers and of insolvency practitioners is to do just that, often in the most complex of circumstances such as the liquidation of BCCI. Insolvency is an area in which the highest standards of competence must be married to the highest levels of probity.
In the 1980s, before the Insolvency Act 1986, insolvency was an unregulated profession. Anybody could become a trustee or liquidator. There were abuses by a minority, often people with no qualifications. In the 1990s, the situation has changed. We have an Act that means that practitioners may be authorised by recognised professional bodies. Those bodies are recognised by the Secretary of State, and they include the principal accountancy bodies such as the Insolvency Practitioners Association and the Law Societies of England, of Wales and of Scotland.
Recognition is on the basis that those bodies have rules to ensure that practitioners have appropriate educational qualifications and experience, and also that they remain fit and proper. The bodies are responsible for the regulation of the practitioners they authorise. The Secretary of State has a residual licensing function, and about 1,830 practitioners are currently authorised.
The regulatory process has developed considerably since its introduction 10 years ago—the Bass case resulted in tangible improvements—but there is no room for complacency. The professional bodies are well aware that the insolvency profession is the subject of continued scrutiny, and my Department will maintain the pressure for the highest standards both within the professional bodies and among the practitioners they regulate.
It is my view that, if self-regulation works, can be seen to work and works in the public interest, it is fine. Clearly, there are other ways of doing things. In the United States of America and in Canada, for example, the Government play a more direct and greater role in the regulation of insolvency practice, but such systems have their flaws. At the same time, self-regulation is a privilege, and if it is to continue it must be earned.
Recent headlines about the Maxwell case have caused widespread concern,—a concern that I share. I was pleased that the president of the SPI welcomed Mr. Justice Ferris's view that the remuneration of insolvency practitioners should
reward value and not indemnify cost".
I hope that all practitioners will heed the judge's words and their president's endorsement of them.
The charging of fees that are out of proportion to the sums recovered is something that we are watching with considerable care. The taxation of fees on insolvency practitioners, which the hon. Member for Torridge and West Devon (Mr. Burnett) kindly reminded the House was the subject of an Adjournment debate last week, has been subject to critical comment by Mr. Justice Ferris. Fees should never be a licence to print money. A liquidation committee has the job of approving the liquidator's fees and expenses. I had the pleasure of meeting Mr. Tony Scott and my hon. Friend the Member for Leicester, East (Mr. Vaz), and I am grateful for the work that was done in ensuring that I was properly briefed.
As my hon. Friend the Member for Great Grimsby made the House aware, a working party has been established to review the experience of 10 years of regulation of the insolvency profession. The working party comprises representatives of the seven RPBs and the insolvency service, and has terms of reference that clearly place consideration of the public interest at the centre of any proposals for the future. That must be right. I took a very early opportunity to meet the working party and to make clear my interest in its work. To call its work a sham is unfair, unworthy and untrue.
The working party's draft report will be available for public consultation. I urge hon. Members to make their views clear once they have studied it. I have requested a formal presentation by the working party of its finding when it produces the report.
I am aware that the working party is giving the matters that have been raised by hon. Members full and careful consideration. I shall give careful consideration to any


recommendations that the working party may make. Clearly, I have no wish to prejudge the outcome. However, I shall want the report to address the concerns that have been expressed in the House tonight. I undertake to ensure that my personal consideration of the working party's findings is given. I shall alert my hon. Friends to that.
We have in Britain one of the best ways of regulating the insolvency profession, but there are grounds for improvement. I have listened with care to what hon. Members have said. We shall, of course, continue to give those matters consideration.

Question put and agreed to.

Adjourned accordingly at one minute past Eleven o'clock.